Preamble

The House met at half-past Two o'clock

PRAYERS

[MADAM SPEAKER in the Chair]

Oral Answers to Questions — DEFENCE

Departmental Relocation

Mr. Devlin: To ask the Secretary of State for Defence what is his policy on relocating his Department's resources and personnel between different regions of the United Kingdom.

The Minister of State for the Armed Forces (Mr. Archie Hamilton): In line with Government policy, the Ministry of Defence aims to locate its work wherever best value for money can be obtained, taking account of the operational requirements of the Department.

Mr. Devlin: Does my right hon. Friend agree that, wherever possible, the Department should seek to locate jobs in areas of higher unemployment, where the jobs and skills base of the local community need bolstering? As his Department failed in the previous Parliament to deliver the quality assurance unit to my constituency, why is he now seeking to move 170 jobs from my constituency to Bath?

Mr. Hamilton: The proposal to move 180 jobs from the naval stores depot at Eaglescliffe is not a decision; it is merely a proposal which we are considering on the basis that the support side of the Navy should be located in the Bath region. I apologise once again to my hon. Friend in relation to the quality assurance unit, which we certainly intended to move to Stockton. However, we decided later that it was possible to absorb its functions into the Defence Research Agency.

Mr. Frank Cook: The Minister may be pleased to learn that although his apology is welcome and polite, it is small consolation to the people of Cleveland, who were disappointed by the previous decision. It is good news that the decision is yet to be made. In reaching a conclusion, will the Minister take account of the fact that it has proved difficult—at least, it is reported to have been so—in the south-west to recruit people of adequate calibre to fill vacancies, whereas it is exceedingly easy in the north-east? There are many considerations other than a pure statement of account. Will the Minister give an assurance that all those factors will be considered fully?

Mr. Hamilton: I can give the hon. Gentleman the assurance that he seeks. We take all such factors into account before reaching a conclusion. I shall have to be

persuaded that recruitment, among other things, is an assumption that holds up before we transfer these jobs from Stockton.

Western European Union

Mr. Ian Taylor: To ask the Secretary of State for Defence when he plans to meet the Secretary General of the Western European Union to discuss future European security arrangements.

The Secretary of State for Defence (Mr. Malcolm Rifkind): I shall meet Dr. Van Eekelen at the Western European Union Council of Ministers meeting on 19 June, but I hope to see him in London before then.

Mr. Taylor: Will my right hon. and learned Friend give clear evidence that progress is being made within the WEU on its strategic thinking about how to react to the increasing dangers outside the traditional territory of NATO, given that it is rethinking its strategy and given the rather worrying and puzzling aspect of the Franco-German brigade? We need strong WEU thinking on this.

Mr. Rifkind: I very much agree with my hon. Friend. A clear decision was reached at the end of the Rome summit that the WEU should be the European arm of the NATO alliance. My hon. Friend referred to the proposed Franco-German corps—to which, as an example of Franco-German co-operation, we do not object. However, a number of questions are still to be answered about the relationship of the corps to NATO and we would regret any weakening in the commitment of those countries to the alliance.

Mr. Menzies Campbell: Does the right hon. and learned 
Gentleman agree that the effectiveness of European security arrangements will depend not only on institutions such as the WEU but on the adoption of common policies in areas such as procurement? Does he share the concern of many hon. Members at the announcement again today of the possible withdrawal of Germany from the European fighter aircraft programme? Would not such a withdrawal have considerable implications for European security arrangements?

Mr. Rifkind: Yes, I share that concern unreservedly. Over the years, Germany has been an extremely reliable European partner and I am happy to pay tribute to that. However, the European fighter aircraft is perhaps the most important example at present of European collaboration. The United Kingdom, Spain and Italy are very keen to go ahead with the project. We very much hope that the German Government, who have not yet reached a decision, will confirm their willingness to be associated with the project, as it will be difficult to take seriously protestations about the need for European co-operation and collaboration if such an important project is endangered.

Dame Elaine Kellett-Bowman: While accepting my right hon. and learned Friend's assertion that the Germans have been reliable partners in defence, many of my constituents believe that the Germans have had their defence on the cheap. They will be extremely angry if the Germans renege


on their participation in the European fighter aircraft project, thus depriving many people in my part of the world of their jobs.

Mr. Rifkind: My hon. Friend is right to draw attention to the important employment implications in this country. There are similar implications in Germany; my hon. Friend may have noticed the strong representations supporting the EFA project from the coalition partners of the German Government and the similar views expressed by hon. Members of all parties.

Mr. O'Neill: I welcome the Secretary of State's continuing commitment to EFA. Does he agree that replacements have still to be found for the Phantom and Jaguar aircraft, not only in our own Air Force, but in others in Europe and the rest of the world? Does he agree that there must therefore still be possibilities for additional orders and sales? If the Germans backed out, the contract could still continue with the continued participation of Italy and Spain. Will the Secretary of State also bear it in mind that the present figures were arrived at in 1986 on the basis of the threat assessment then and may not be figures to which we should be committed in terms of the EFA numbers that we should want in future?

Mr. Rifkind: I welcome the hon. Gentleman's interest in defence sales, which has not always been apparent on the Opposition Back Benches. We have been working on a planning assumption of 250 European fighter aircraft. That assumption would be concluded only at the appropriate time. We do not need to reach a conclusion on the precise numbers for some time, so it is appropriate at this stage simply to give our unqualified commitment to the project. I have no doubt that a substantial number of aircraft will be required; the precise number can be decided at the appropriate time.

Army Restructuring

Mr. Ancram: To ask the Secretary of State for Defence what reconsideration, if any, he has given to the pace of the restructuring of the Army in the light of developments in the former federation of Yugoslavia and other international areas of unrest.

Mr. Rifkind: Changes in the international security environment and the need to provide forces relevant to the challenges of the mid-1990s and beyond were taken into account in the Government's decisions on the restructuring of the armed forces.

Mr. Ancram: Does my right hon. and learned Friend agree that, in the light of the horrific events in Bosnia and Croatia and of the increasing tensions in former parts of the Soviet Union, the security considerations and the potential peacekeeping responsibilities facing this country have changed dramatically since the restructuring was first proposed? Will he now reconsider the pace and extent of that restructuring in the light of the uncertainty in the international scenario? Does he agree that the lesson of history is that it is always easier to disarm than to rearm?

Mr. Rifkind: We are already committed to a peacekeeping presence in Croatia. An advance party is already in that country and the remainder of the field medical unit is due to go out shortly. With regard to any future commitments on peacekeeping, we should always

take into account whether there is a genuine peacekeeping contribution to be made. I always make a distinction between peacekeeping and peace enforcing; that is a very important distinction which should always be borne in mind when such issues are raised.

Mr. Rogers: I am sure that the Secretary of State is aware that the Opposition have been asking for some years for the Department to carry out a full-scale defence review. In view of the substantial changes taking place in Europe and the world, there is obviously a need for such a review. Will the Secretary of State give an undertaking to the House today that he will instigate such a review so that we can match our resources to our present and potential commitments and not simply respond, as we do at present, to Treasury demands for cuts?

Mr. Rifkind: I do not accept the premise of the hon. Gentleman's question. My predecessor and his colleagues gave deep consideration to the likely demands on our armed forces in the years to come. Of course we continue to monitor the international situation. It is always appropriate in this country and in any other country continually to assess the demands likely to be made on our armed forces over the years and to ensure that our armed forces are of a scale and quality able to respond to those challenges.

Eltham Palace

Mr. Peter Bottomley: To ask the Secretary of State for Defence when and how decisions will be made on the future of Eltham palace.

Mr. Archie Hamilton: A study examining the implications of moving the headquarters of the director of educational and training services (Army), including the Service Children's Education Authority, to Worthy Down is nearing completion. No decision will be taken before we have consulted all concerned, including the trade unions.

Mr. Bottomley: Will my right hon. Friend accept that my suggestion that a deputation should meet him or his colleagues because the future of Eltham palace, with its historic setting and great hall, should continue to be linked to education, whether or not with a military connection? That is a matter of great concern locally, although it may not be the biggest issue facing the military services at the moment.

Mr. Hamilton: I should be delighted to receive a delegation from my hon. Friend and to discuss the future of Eltham palace with him. We are having discussions at the moment with the Crown Estate Commissioners, the freeholders of Eltham palace, about how Eltham palace might be handed back.

"Options for Change"

Mr. Viggers: To ask the Secretary of State for Defence if he will make a statement on the implementation of the programme "Options for Change" for the armed forces.

Mr. Rifkind: "Options for Change" is a necessary reform which has its parallels in all NATO countries as well as in those of the former Warsaw pact. A number of


announcements have already been made about the implementation of our proposals; I will continue to keep the House fully informed of progress.

Mr. Viggers: I thank my right hon. and learned Friend for that reply. Does he recall that when the Select Committee on Defence examined the Statement on the Defence Estimates 1991 it considered a range of defence procurement projects and concluded that if all the projects were to go ahead, that would lead to what the Select Committee called "a strikingly well-equipped Army"? Does my right hon. and learned Friend agree that that procurement is now going ahead, confirming the Government's claim that although the armed forces will be smaller, they will be more flexible and better equipped? Does my right hon. and learned Friend accept—this concerns many people in my constituency who are armed forces personnel—that the armed forces continue to provide an excellent career opportunity?

Mr. Rifkind: My hon. Friend is correct. The Select Committee referred to the fact that the Army should have available to it proper equipment of a high quality and it mentioned the Challenger tanks for the Royal Armoured Corps, armoured personnel carriers and other forms of equipment, all of which are at various stages of implementation. I warmly endorse my hon. Friend's final comment that a career in the armed forces still offers superb opportunities and can be a source of considerable fulfilment for the men and women coming forward to serve in the forces now.

Sir David Steel: A few moments ago the Secretary of State drew a proper distinction between peacekeeping forces and peace enforcing forces. Is he aware that hon. Members are concerned about the lack of capacity under the "Options for Change" scheme to engage in future peace enforcement activities, which is a crucial role for this country as a permanent member of the Security Council?

Mr. Rifkind: I hear the right hon. Gentleman's point. I remind him that at present there are 1,200 British forces involved in various United Nations peacekeeping forces in Croatia and Cyprus; they will also be in Cambodia and several other countries. I think that we have demonstrated our commitment to the United Nations and our ability to respond to reasonable requests from that body.

Mr. Cyril D. Townsend: Is my right hon. and learned Friend aware that many of us who supported the "Options for Change" decision in the last Parliament, although we were well aware that we were cutting very close to the bone, would not be prepared to back any further cuts that might be suggested by the Treasury? Does my right hon. and learned Friend realise that he has considerable support on the Conservative Benches for a bit of early firing in that direction?

Mr. Rifkind: I am naturally delighted to hear what my hon. Friend says. I accept his remarks both in the spirit and in the letter.

Rev. Martin Smyth: I welcome the Secretary of State's assurance that he will keep us informed of changes. When will he make a statement about the reorganisation of the medical reserves in the Territorial Army, bearing in mind the need to keep a strong medical team in the light of our experiences in the Gulf preparation and in the ensuring conflict?

Mr. Rifkind: I cannot give the hon. Gentleman a date at present, but perhaps I may keep him fully informed as soon as that information is available.

Mr. Cormack: Is my right hon. and learned Friend aware that there is continuing widespread concern at the cuts in the infantry? Will he look again at that? Does he appreciate that the concern would be considerably reduced in Staffordshire if he reprieved the Staffordshire regiment?

Mr. Rifkind: I am, of course, aware that concern has been expressed in a number of different quarters. I acknowledge that it is very important to ensure that future force levels will be adequate to the tasks that we ask the services to undertake. I intend to keep that requirement firmly in mind.

Sport

Mr. Hinchliffe: To ask the Secretary of State for Defence if he has any proposals to amend the list of sporting activities recognised within the armed forces.

Mr. Archie Hamilton: We have no plans at present to alter the list of sports which are officially recognised. The range of sports which enjoy official recognition is, however, kept under review to ensure that it reflects demand originating from grass roots level within the services.

Mr. Hinchliffe: The Minister will recall meeting an all party delegation in March about the recognition of rugby league in the armed forces. What steps were taken to communicate the outcome of that meeting to the heads of establishments and units within the armed forces? Why, at certain RAF stations, were station orders posted indicating that personnel should not have contact with the rugby league's national development officer? Why were personnel at RAF Marham, who were organising a rugby league competition next Saturday, refused permission to use the pitches at that base? That seems to be completely against the spirit of what was agreed at the meeting in March.

Mr. Hamilton: As I assured the hon. Gentleman at the meeting, we were happy to give him all possible facilities in terms of publicity material which would be circulated within the three armed services. I have no idea why facilities should have been debarred or such notices put up: it is totally against the spirit of the undertaking that I gave the hon. Gentleman at our meeting, and I will investigate both events.

Surplus Land

Mr. Simon Hughes: To ask the Secretary of State for Defence what are his proposals for the return to public use of surplus Ministry of Defence land; and if he will make a statement.

Mr. Archie Hamilton: The rationalisation of our land holdings and the early disposal of surplus property remains a high priority.

Mr. Hughes: Given that in 1985 Ministry of Defence policy was confirmed as being to acquire an extra 50,000 acres of land for training purposes, and given that on II February the National Audit Office said that the proposals were unjustified in terms of supporting evidence and that


they would use more land than was needed, will the Government now agree to an independent external review of Ministry of Defence land holdings so that we can ensure that it has the right land in the right place, and that it uses it properly and fully, and no more?

Mr. Hamilton: I do not think that an external audit is necessary. We are trying to make sure that the training areas that we have are suitable for the weapons systems and the type of training that we are trying to do. As the hon. Gentleman will know, the range of many of our weapons systems gets longer all the time, so we need bigger training areas. As the hon. Gentleman will also know, we are bringing back some troops and weapons systems from Germany, which will also change our demand and need for training areas. We constantly review the number of training areas that we have and we dispose of unwanted land whenever we possibly can. The hon. Gentleman will know that we disposed of £102 million of surplus property last year and £86 million the year before. We are hoping to repeat a £100 million disposal this year.

Mr. Ian Bruce: Should my right hon. and learned Friend be considering proposals to buy yet more land north of Bristol to build yet another MOD facility when we have excellent and underused facilities at Portland which could accommodate all the necessary staff? Will my right hon. and learned Friend instruct the MOD to stop looking at new sites and use the sites that we already have?

Mr. Hamilton: I can certainly give my hon. Friend the undertaking that he needs. We seriously consider our own land holdings. Only with the greatest reluctance would we purchase new land to put up new office blocks and so forth. Obviously, we prefer to use the land that we already have.

Mr. Cryer: Does the Minister recall that a few years ago the right hon. Member for Henley (Mr. Heseltine) went to Molesworth common in a flak jacket and with more troops than stormed Goose green in the Falklands war to turn off a dozen peace people who were growing crops? Would it not be a good idea for the Ministry of Defence to put Molesworth and Greenham common to use for growing food? It should get rid of the land entirely. It is no longer necessary. It should give the food to the starving people of the world. That would also be a good principle to apply to the expenditure on Trident. We should cancel Trident and use the money for the national health service and the starving people of the world.

Mr. Hamilton: If the hon. Gentleman is such a good friend of the Campaign for Nuclear Disarmament, perhaps he would like to go down to Greenham common and remind the women down there that the missiles have left and no one can understand why they are still sitting there making a filthy mess of the area.

Mr. John Greenway: Is there not already plenty of public access to much land already owned by the Ministry of Defence? Will my right hon. Friend assure the House that as the need for such land perhaps reduces in the years to come there will be proper consultation with local authorities and the countryside agencies about the continuing amenity value of the land to the public and its value for nature conservation?

Mr. Hamilton: Yes, indeed. We issued a pamphlet recently at a press conference given by Lord Cranborne. It

was pointed out that we give access to most of our training areas. There are footpaths where people can walk and when ranges are not being used for live firing they are available to the public. We are considering ways of making our ranges increasingly available to the public when we are not using them.

NATO

Mr. McAllion: To ask the Secretary of State for Defence when he next intends to meet other NATO Defence Ministers to discuss NATO defence policy.

Mr. Rifkind: I met my NATO colleagues last week at meetings of the Eurogroup, the Defence Planning Committee and the Nuclear Planning Group in Brussels. We discussed a range of current alliance business and reaffirmed NATO's fundamental importance to the security of Europe. Copies of the communiqués issued following the meetings have been placed in the Library.

Mr. McAllion: With the collapse of the Soviet Union and the Warsaw pact, is it not time to reassess with our NATO allies our strategic defence policies, including a full review of our so-called independent nuclear deterrent? Should not that review begin by calling into question the relevance of keeping one Polaris at sea at all times when, according to press reports today, safety problems caused by that policy are endangering the lives of submariners and the public by increasing the likelihood of a nuclear accident?

Mr. Rifkind: The reports to which the hon. Gentleman refers have already been repudiated as baseless. The hon. Gentleman should be aware that no submarine goes to sea unless all safety requirements have been fully complied with. On the general strategic situation, the hon. Gentleman must be aware not only that Russia remains a major nuclear super-power but that massive reductions in the nuclear potential of both the alliance and the former Soviet Union are already taking place. The United Kingdom has indicated its intention to withdraw certain tactical and other nuclear missiles as a contribution towards that welcome process.

Mr. Wilkinson: Will my right hon. and learned Friend ensure at his next meeting with his counterparts in other NATO countries that the naval forces of the alliance will be available if necessary to enforce the United Nations blockade imposed against Serbia? It must be made effective. Could those naval forces also be a deterrent against the indiscriminate use of force by the Yugoslav navy against helpless civilians in Dubrovnik and other Croatian towns?

Mr. Rifkind: The decisions taken so far have been to impose economic sanctions against the Yugoslav republic. No decision has been taken by the United Nations in favour of a naval blockade. If any proposal is made, we shall have to consider it, but there is no such proposal before the international community at present.

Dr. Godman: Is not it inevitable that Europe—through the Western European Union rather than NATO—will have to take a much greater responsibility for its security and defence? Is not it also likely that future American presidents will come under enormous pressure from the United States Congress and the American people to reduce


their commitment to the defence of Europe? When will the Government face up to the realities surrounding the security and defence of Europe?

Mr. Rifkind: There might be pressures of the kind to which the hon. Gentleman referred, but I remind him that the Atlantic alliance has been uniquely successful in ensuring the peace of Europe for the past 40 to 50 years. I and the Government believe that the alliance has a continuing relevance to the well-being of Europe. It is interesting that the newer, emerging democracies in Czechoslovakia, Poland and Hungary emphasise the desirability of NATO continuing, and that that is also the view of the majority of people in the United States.

Sir Michael Marshall: Would my right hon. and learned Friend care to expand the answer that he has just given by rejecting what the hon. Member for Greenock and Port Glasgow (Dr. Godman) has just urged him to do? Surely, when one considers Yugoslavia or the world scene at present, the link with NATO, within the United Nations, is likely to be the more fruitful in dealing with many worldwide problems. We must all play our part. Does he agree that the idea of Franco-German or other European initiatives is premature and ineffective?

Mr. Rifkind: My hon. Friend is correct. The NATO alliance represents an area of stability in a continent which has unfortunately become turbulent, and it is appropriate for us to consider—as is being done within NATO—whether NATO can make additional contributions towards peacekeeping or other requirements. Those matters still have to be discussed and conclusions have to be reached. However, I am sure that NATO continues to have an enormous contribution to make to the security and well-being of the countries that make up the alliance and of Europe.

Infantry

Kirkwood: To ask the Secretary of State for Defence when he expects to be in a position to respond to the Select Committee on Defence's proposals on the size of the infantry in "Options for Change".

Mr. Rifkind: I expect to be in a position to respond shortly to the Defence Select Committee's third report.

Mr. Kirkwood: Does the Secretary of State recall that, at the time of the Kincardine and Deeside by-election, he wrote a letter expressing his hope at that stage that some of the proposed amalgamations for the Scottish regiments could be reconsidered? Having regard to the situation that obtains in Yugoslavia and to the extra demands that may be made on our infantry, and to the intolerable pressure on service families in some regiments facing amalgamation, would the Secretary of State respond as early as possible? Will he make his response positive and reprieve, or bring back, at least some of the regiments facing amalgamation?

Mr. Rifkind: I have said that it is important to ensure that the needs of the armed forces are fully met and that we do not impose on them any requirements to which they cannot properly respond. It is therefore important to use those criteria to determine the imposition of "Options for Change" during the next two years. Parallels can be found

throughout the western world which show that substantial savings can be made on defence and they are appropriate at the present time.

Mr. Bill Walker: Will my right hon. and learned Friend bear it in mind that it is better to take time and to view the matter coolly and properly, rather than to make hasty decisions? Most defence decisions are made in the light of events and in many areas of the world, those events are not under our control. Yet, as history has shown, we are often required to send Scottish regiments to trouble spots around the world.

Mr. Rifkind: As my hon. Friend said, it is certainly the case that our armed forces have often been called on to meet obligations in other parts of the world. About 1,200 British forces are in peace-keeping roles in other countries, and we have 13 United Kingdom dependent territories, many of which require a military presence to ensure their security. All those factors have to be taken into account when determining what the force levels in the armed forces should be in the years to come.

Dr. Reid: May I take this first opportunity to congratulate the Secretary of State on his appointment? Is not the fact that he holds that office, and that the right hon. Member for Bridgwater (Mr. King) has demitted office, a sign and a tacit admission that the Government got their sums wrong over "Options for Change"? Will he now answer the question put to him—does he stand by the views that he expressed in his letter during the Kincardine and Deeside by-election about the possible overstretch of the infantry? Will he give us, in plain words, a guarantee that that decision will be re-examined, as urged by every section of the House, including the Select Committee on Defence, apart from his predecessor?

Mr. Rifkind: May I first pay tribute to my right hon. Friend the Member for Bridgwater (Mr. King), the former Secretary of State for Defence, for the courage with which he proposed "Options for Change"? Throughout that time he showed a determination worthy of our admiration. With regard to the issues to which the hon. Member for Motherwell, North (Dr. Reid) referred, I emphasise that I attach considerable importance to ensuring that force levels are appropriate to the demands expected of our armed forces. If the Government ever came to the view that force levels needed to be reviewed that is what they would do. Those are the criteria to apply.

Mrs. Ann Winterton: Does my right hon. and learned Friend accept that real and informed concern is being expressed within military and civilian circles about the future size of the infantry, bearing in mind our responsibilities, not least in Northern Ireland? Is my right hon. and learned Friend aware that overstretch is a serious problem? Will he consider the report by the Select Committee on Defence? Will he consider, once again, the excellent case for the retention, as a single county, regiment, of the Cheshire regiment, which is well recruited and well retained?

Mr. Rifkind: I note what my hon. Friend says. To put the position completely in the round, my hon. Friend is aware that there are proposals not only to reduce the number of battalions in the armed forces but to reduce greatly their commitments because of the rundown of our forces on the continent and, ultimately, the withdrawal of


certain battalions from Hong Kong. Those factors must be borne in mind when deciding what the appropriate level of our forces should be.

Secrecy Classification

Mr. Martyn Jones: To ask the Secretary of State for Defence at what level of secrecy classification he is willing to disclose documents to hon. Members.

The Minister of State for Defence Procurement (Mr. Jonathan Aitken): Hon. Members may be allowed access to information at various levels of classification depending on the circumstances. Classified information is also made available in accordance with the published rules to members of Select Committees.

Mr. Jones: I think that I heard the Minister's reply that, sometimes, restricted documents would be available. May I remind the Minister that, last year, I asked the Secretary of State for the criteria applied to the construction of safe ranges? That information was refused me as it is in a classified document. I was then sent it anonymously—[Interruption.] Does the Minister agree that it is ludicrous for the information on the safety criteria for ranges to be classified in any way and that it is even more ludicrous for hon. Members to be refused access to that information? Is it not even more ludicrous—[Interruption.] Is it not even more ludicrous that I was able to obtain a copy of that document not from some foreign agency, but from a constituent of mine? Does he not—

Madam Speaker: Order. This is Question Time. It is not a debate and the hon. Member has asked quite enough questions.

Mr. Aitken: There is no ministerial responsibility for anonymous letters.

Mr. Dickens: Am I not right in saying that the key element in the defence of the realm is surprise and that there is a great difference between betraying classified information to a potential enemy and the citizens charter, which gives people their rights? We must be careful in the information that we make available.

Mr. Aitken: My hon. Friend has made his point in his usual robust way. He is right to point out that there is a difference between classified information and the information covered by the citizens charter, which is simply information already in the public domain, but which needs greater and wider amplification.

Trident

Mr. Raynsford: To ask the Secretary of State for Defence when he will be placing an order for the fourth Trident.

Mrs. Helen Jackson: To ask the Secretary of State for Defence when he intends to place an order for the fourth Trident.

Mr. Aitken: We intend to place the order for the fourth Vanguard class submarine as soon as contract negotiations with Vickers Shipbuilding and Engineering Limited have been satisfactorily concluded.

Mr. Raynsford: What is the Minister's latest estimate of the total cost of the Trident programme, including

inevitable future costs such as decommissioning? How do those costs compare with original estimates for the programme and what value-for-money criteria are applied to that element of Government expenditure?

Mr. Aitken: I am pleased to tell the hon. Gentleman that Trident remains on time and within budget. The total procurement cost is £10·5 billion, which is £2·9 billion less than the original cost estimate, a point which was well praised by the Select Committee on Defence which said that it was pleased by the
gratifying and unusual spectacle of a major defence procurement programme coming in far below estimate.
I hope that the hon. Gentleman is pleased with that good news. I can tell him, in answer to his questions about other costs, that the general operating costs of Trident are expected to be similar in percentage terms to those of the Polaris programme—that is, something below 2 per cent. of the overall defence budget.

Mrs. Helen Jackson: Is the Minister aware that that cost is more than double even the amount of public money that the Conservatives have put into the failed docklands development? Will he consider including the whole Trident programme in the arms reduction talks with the Americans and Russians when the new round of talks start, enabling the programme to be decommissioned and the money put into social and economic programmes that better serve inner-city residents? Or is he considering putting 6,000 civil servants on the first Trident submarine to be commissioned?

Mr. Aitken: That would make the Trident submarine rather overcrowded. I do not think that we could accept the hon. Lady's suggestion under any possible terms. Trident is a minimum deterrent system. That view was endorsed by President Yeltsin during his recent visit to Britain. We do not believe that we can make compromises with Britain's essential security requirements.

Mr. Thurnham: Will my hon. Friend bear in mind the importance to the north-west region of the Trident project and of the European fighter project and make sure that both go ahead?

Mr. Aitken: I agree with my hon. Friend that the employment dimension of those programmes is of considerable significance. The United Kingdom Trident programme will provide, at its peak, 14,500 direct and 11,500 indirect jobs in this country. I am glad that my hon. Friend's constituency is benefiting from those arrangements.

Mrs. Gorman: Is my hon. Friend aware that some Opposition Members, including, I believe, the hon. Member for Cynon Valley (Mrs. Clwyd), think that we should order these splendid vessels but not put missiles on them? Would that not be equivalent to ordering a Rolls-Royce and neglecting to put in a chauffeur?

Mr. Aitken: My hon. Friend is right to point out that during the election campaign statements were made by members of the various wings and splinter groups of the Labour party which would have made a complete Alice in Wonderland situation of any defence policy.

Mr. O'Neill: Will the Minister explain why the country can be defended with a minimum deterrent of three Polaris boats now but will require four Trident boats in the year 2000?

Mr. Aitken: I can answer that question easily. The country is defended over only a short period by three Polaris boats. All informed naval opinion is agreed that if we are to have a safe and secure nuclear deterrent, with submarines on patrol at all times, it is necessary for us to have a four-boat operation.

Mr. Brazier: I offer a belated welcome to my hon. Friend on his new position. It is overdue promotion. If poachers make the best gamekeepers, I am certain that our secrets and Trident submarines will be very safe indeed. Will he confirm that intelligence reports show that more and more third-world countries are acquiring nuclear weapons, and that while a Conservative Government are in office, there will be no question of our forgoing our minimal nuclear deterrent, the Trident programme?

Mr. Aitken: It appears to be a matter of published record that some unfriendly countries are acquiring the old hardware of the former Soviet Union. That does indeed make for a dangerous and unstable situation. So this is not the moment for Britain to be in any way relaxing its guard, with its independent nuclear deterrent the ultimate safeguard of our national security.

Royal Fleet Auxiliary

Mr. Loyden: To ask the Secretary of State for Defence what is the present number of Royal Fleet Auxiliary vessels in commission.

Mr. Archie Hamilton: The Royal Fleet Auxiliary currently has 22 vessels in commission; II tankers, four replenishment ships, five landing ships logistic, a helicopter support ship and a forward repair ship.

Mr. Loyden: Is it not a disgrace that, during the Gulf war, out of the more than 100 ships that were commissioned, only four or five were British owned and flagged? When will the Government recognise that they must support the British merchant fleet so that, when vessels are needed they are available, rather than the Government having to use foreign-flagged and registered ships? When will they wake up to the fact that the British merchant fleet must be stimulated so that the ships are there when needed?

Mr. Hamilton: During the Gulf war, most of the British ships that we might have chartered were occupied doing other things and were not available for charter, so we chartered on the open market and satisfactorily proved that we could get supplies to the Gulf during the war without needing British ships. We keep the British register under careful review and would be concerned if the numbers of merchant ships were declining too fast. The situation is not yet drastic.

Oral Answers to Questions — PRIME MINISTER

Engagements

Ms. Primarolo: To ask the Prime Minister if he will list his official engagements for Tuesday 2 June.

The Prime Minister (Mr. John Major): This morning I had meetings with ministerial colleagues and others. In addition to my duties in the House, I shall be having further meetings later today.

Ms. Primarolo: Does the Prime Minister recall that on 6 May he told the House that he wanted to sign the global convention on biodiversity at Rio? Does he agree that it would be indefensible for any major power to refuse to sign a treaty that halts the mass destruction of species by human intervention?

The Prime Minister: We are working hard to make sure that we shall be in a position to sign the convention. As the hon. Lady knows, this country leads the world in scientific expertise on biodiversity, not least at Kew, and we play an important international role in attempts to achieve a convention that can be signed generally. A number of countries have financial concerns about the convention, and the particular concern, which I hope we shall be able to overcome, is that the financial articles imply an open-ended commitment to provide developing countries with additional finance, without the necessary corresponding commitments to conserving biodiversity. That is not of any interest to us or to them.

Sir Teddy Taylor: Has the Prime Minister heard of the threat issued yesterday by Commissioner Scrivener to the Chancellor of the Exchequer, that he would be taken to court and Britain would be in real trouble if we did not agree, next Tuesday, to the long-term charging of VAT on food, gas, electricity and children's clothing? Will the Prime Minister give us a clear undertaking that there will be no surrender next Tuesday?

The Prime Minister: There is no question of the United Kingdom being forced to give up zero rates, which are guaranteed in the sixth VAT directive. The question at issue is whether the Council should agree to a legally binding minimum rate of VAT. We do not believe that that is necessary for the completion of the single market. A number of related issues remain to be resolved, including excise duties, but we cannot accept an agreement that would force member states to impose large increases in duty on spirits, to the detriment of our industry. The sixth directive is the key point on the substance of my hon. Friend's question.

Mr. Kinnock: Does the Prime Minister agree that widespread poverty in the third world is a major cause of damage to the world environment? If he does agree, what new action will he be proposing in Rio to combat that poverty more effectively?

The Prime Minister: As the right hon. Gentleman knows, we have one of the most effective development aid programmes of any country in the world—[Interruption.] I am sorry that Opposition Members appear not to recognise that fact. I repeat, we have one of the most effective aid programmes anywhere in the world. As the right hon. Gentleman will know, with the Toronto terms and the Trinidad terms Britain led the way in encouraging countries across the world to write off large amounts of debt specifically to help the poorest countries.

Mr. Kinnock: The Prime Minister really cannot defend the Government's record on development aid. The Government have cut by half the amount and the value of official development aid to the third world since they have been in power. When the poorest countries in the world are putting a net £50 billion in debt repayments back into the richest countries in the world, does not the Prime Minister think that those industrialised countries should make


much bigger investment commitments to the conservation and protection of the world environment, not only to combat poverty in the third world but to conserve our global environment?

The Prime Minister: The right hon. Gentleman touches on a matter on which there is agreement in substance across the House. There is no dispute about the need for help. Where I part company with the right hon. Gentleman is in his assertion that Britain has not led the way in the quantity and quality of assistance and aid that it has given for many years, not just in direct aid but in the substantial debt write-offs, to which I just referred but to which the right hon. Gentleman did not, and in the substantive amount of private sector investment that also goes into third-world countries. If the right hon. Gentleman is unwilling to take my word for that, I suggest that he talks to the leaders of the third-world countries and hears what they have to say about the quantity and quality of our assistance to them.

Mr. Kinnock: The Prime Minister will, no doubt, be speaking to some of the Heads of Government of third-world countries in the course of the next week or so and perhaps he will faithfully report to us the view of Britain's cut by half—I repeat that, because it is true—in overseas development assistance during the past 10 or 12 years. The crisis of poverty and environmental degradation is continuing. Will the Prime Minister now tell us what he will specifically propose in the way of action in Rio and afterwards in order to arrest the increasing tide of poverty and the increase in degradation, both of which are linked?

The Prime Minister: The right hon. Gentleman really ought to know that we address the question of direct financial resources to overseas aid at the time of the public expenditure round. We have done so consistently and we have dramatically increased in real terms the amount of aid, and directed the aid better to those areas where it most needs to go. I shall certainly discuss that with fellow Heads of Government from other parts of the world, as I have done repeatedly in recent years. I am in a better position than the right hon. Gentleman to know their view on our contribution.

Mr. Jessel: When my right hon. Friend is in Rio, will he have the opportunity to mention to the Government of Brazil the concern in Britain about the murder of children on the streets of Rio?

The Prime Minister: I shall have a number of opportunities in Brazil to discuss matters with other Heads of Government and I shall certainly take the opportunity where appropriate to raise the point made by my hon. Friend.

Mr. Ashdown: Does the Prime Minister realise that the answers that he has given today to the massive challenges that face us at Rio are frankly pathetic? Does he not have any understanding that this is probably the last best chance that we have to allow the planet to heal itself and that if he and his fellow leaders will not rise to that challenge they will be condemned?

The Prime Minister: The right hon. Gentleman is talking copper-plated nonsense. The reality is that Britain has led the way in the preparation of much of the work that comes to fruition in Rio. It is this country which has

led the way. This is the start of a continuing process. This is not, as the right hon. Gentleman apparently rather inaccurately believes, the beginning and end of the process. As I told the hon. Member for Southwark and Bermondsey (Mr. Hughes) three weeks ago in the House, it will take a long time for all our ambitions on the environment to be reached. We are dealing with practical measures. The right hon. Gentleman may dream, but we have practical action to take.

Mr. John Evans: To ask the Prime Minister if he will list his official engagements for Tuesday 2 June.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Evans: Will the Prime Minister take a few minutes off dithering as to how or whether he will vote at the Earth summit, to explain to the British people why, at a time when British unemployment is heading towards 3 million and the public sector borrowing requirement is on course to reach £40 billion, Britain's balance of payments deficit in April was in excess of £1,300 million? Is this country headed for an economic miracle or for an economic nightmare?

The Prime Minister: The hon. Gentleman is, as usual, remarkably selective in what he says and looks at. If the hon. Gentleman had looked at what business men have said in the period since the election—[Interruption.] Well, business men know rather more about it than the hon. Gentleman will ever do. The hon. Gentleman might have seen the Confederation of British Industry report on small business men, who are more confident about growth now than at any time in the last few years. He might have noted also the EC Gallup survey, which shows a strong increase in confidence, and the sharp rise in confidence and activity in other CBI surveys. The hon. Gentleman might have seen a great deal more if he had removed the blinkers from his eyes.

Mr. Jacques Arnold: To ask the Prime Minister if he will list his official engagements for Tuesday 2 June.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Arnold: During his visit to central Europe last week, did my right hon. Friend have the opportunity to meet the leaders of Poland, Czechoslovakia and Hungary, to discuss their potential applications to join the European Community?

The Prime Minister: Yes. I assure my hon. Friend that I had discussions with the leaders of each of those three countries on precisely that point. The freedom of those countries and their removal from the old Soviet bloc is one of the most welcome international developments since the second world war. They are now committed to democracy and to free market economics. During our presidency of the Community, we want to put solid flesh on the association agreements that we signed with them. We look forward to the day when they join the Community, even though that may not be until the turn of the century. Our judgment is that the best way to enhance democracy is to share it—and that is what we intend to do in the case of those countries.

Mr. McMaster: To ask the Prime Minister if he will list his official engagements for Tuesday 2 June.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. McMaster: Does the Prime Minister recall that during Question Time two weeks ago, he promised to respect the democratically expressed wishes of the people of Northern Ireland? If it was right to give that commitment to one part of the Union a fortnight ago, is it not right to give the same commitment to the people of Scotland today? When the Prime Minister visited Scotland yesterday, why did he promise only to think long and hard about Scotland's future—so long and hard that four hours later, he ruled out a Scottish Parliament within the United Kingdom? If the right hon. Gentleman is a democrat, will he give to the Scottish people the right to decide their own future in a multioption referendum?

The Prime Minister: The answer to the hon. Gentleman's latter question is no. As to his point about a tax-raising Parliament in Scotland, I ruled that out some time ago in the House and elsewhere for reasons that were sound then, are sound now and will remain sound in the future. The hon. Gentleman need not ask me about that matter—it is settled.

Mr. Alexander: Has my right hon. Friend taken note of the effectiveness of the temporary abolition a few months ago of stamp duty on house purchase? Bearing in mind that the Exchequer forwent very little revenue, will my right hon. Friend recommend to my right hon. Friend the Chancellor of the Exchequer that when the temporary abolition expires in August, it be made permanent?

The Prime Minister: No. I am afraid that I cannot undertake to do that. My right hon. Friend the Chancellor will examine that matter in August. The original proposition was that stamp duty exemption would last until August and not longer.

Mr. Pendry: To ask the Prime Minister if he will list his official engagements for Tuesday 2 June.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Pendry: Is the Prime Minister aware that the staggering increase in crime in London that was revealed yesterday is symptomatic of a worrying concern throughout the land? That includes my constituency, where crime has doubled in the past decade. With that reality in mind, will the Prime Minister do something positive, such as unlocking the handcuffs from the Home Secretary so that he can get to grips with the Government's own crime prevention report—the Morgan report, which said something positive about crime in this country and which the Government shelved last August? Would not that be the way for the Prime Minister at least to appease the chairman of the Police Federation, who said only last month that the Government were blaming the police because they had no ideas of their own?

The Prime Minister: The hon. Gentleman might care to examine the increased resources in both manpower and equipment, quite apart from the increased legal facilities that have been made available to the police. I also think that we should not be blind to the achievements of the Metropolitan police, such as the improvements in the clear-up rate that we have seen in recent years. They have made dramatic improvements in a number of areas.
Another point, with which I know that the hon. Gentleman will agree, is that tackling crime is not just a matter for the police. Increasingly, people in society at all levels can be seen playing their own role, and it is essential for that to continue.

Canary Wharf

Mr. Bryan Gould: (by private notice): To ask the Secretary of State for the Environment whether he will make a statement about the future of the Canary Wharf project, and what decision, if any, has been made about the transfer of civil servants.

The Secretary of State for the Environment (Mr. Michael Howard): The future of the Canary Wharf development is in the hands of the administrators who were appointed last week to resolve the financial problems of Olympia and York with their creditors. The Government have made it clear that they have no intention of intervening in the affairs of the company, and it would be inappropriate for me to make any further comment on that at this time. There has, however, been much speculation in the media about the possible move of civil servants to docklands. I am grateful for this opportunity to clarify the position.
As the House knows, my predecessor decided in February that my Department's headquarters at 2 Marsham street should be demolished. [HON. MEMBERS: "Hear, hear."] That decision was widely welcomed—and clearly still is. A timetable for moving staff by the end of 1993 was then identified. In the context of that decision, consideration is being given to the relocation of those of the Department's staff who need to remain in London, but not in Westminster. As my predecessor told the House, the Department was particularly asked to examine the opportunities and value for money of relocation to docklands.
It is clear that exceptional value for money may now be secured in docklands. [Interruption.]

Madam Speaker: Order. This is an important statement, which I want to hear. Let us carry on with it in good order.

Mr. Howard: The work that has been done by the Department's advisers has reached a stage that makes it possible for me to announce that some 2,000 civil servants in my Department will move to docklands, provided that we are able to secure fully commercial terms giving value for money to the taxpayer. Detailed negotiations are now under way in respect of three developments: Harbour Exchange, East India dock and Canary Wharf. Subject to successful negotiations, I hope soon to proceed to the stage at which it will be possible for me to sign heads of agreement in respect of one of those developments.
A number of other Departments are also considering docklands as a location for their staff. The Department of Trade and Industry is working to a timetable similar to my own in respect of the Radio Communications Agency. That Department, with a number of other major Departments—including the Department of Transport—is reviewing its future accommodation needs, and is including docklands among the options for study. Decisions are likely later this year.
In all those decisions, I have been very much aware of the concerns of staff and of the need to put in place arrangements that will help to minimise the effect of any such moves on staff in the Departments concerned.

Mr. Gould: Is it not astonishing that the Government are still dithering about accepting their responsibility for a

fiasco that is largely of their own creation? Do not Ministers accept that it was they who irresponsibly stoked up a property boom and who equally deliberately brought it crashing down, and that it was their blind faith in market forces which excluded the interests of local people and ensured that essential infrastructure simply did not get built? Canary Wharf is a monument to the Government's folly, as well as to the folly of the banks involved.
Is it not time to do what should have been done in the first place: make a proper assessment of where the public interest, and therefore the public responsibility, lies? That can be done only on the basis of full disclosure and total transparency. It cannot be done through a back-door deal to channel taxpayers' money to Olympia and York by way of rents for office space that cannot otherwise be let. Since that is so clearly what is in Ministers' minds, what consultation, if any, has there been with the civil servants who will have to move? What assessment has been made of the costs, administrative and financial, that will be involved? What guarantee is there that there will be no element of hidden subsidy in the move that is proposed?
Does not the Secretary of State recognise that the response of the House to his announcement will be reflected by the response of the people of this country? They will recognise not only that the Olympia and York investment is at stake but that Ministers' reputations are being protected. Is it not the case that the public interest cannot be properly protected unless we know to what extent it is already involved? When will Ministers tell us the truth about how much taxpayers' money has already found its way into this project by way of direct grant, tax breaks and rate relief, and when will the Government publish the agreements concluded between Olympia and York and Government Departments so that we can judge what is involved if the Jubilee line extension, which is surely essential to the project, is to be undertaken?
No one wants to see this project fail. We on this side of the House have no investment in failure—nor do the long-suffering people of east London—but we cannot judge the action needed until we know the facts. It is time for the Government to come clean and to face up, at last, to their responsibilities.

Mr. Howard: The hon. Gentleman is living in a fantasy world. There is no question whatever of back-door deals. There is no question of subsidy, hidden or otherwise. There has never been any subsidy for this development. The hon. Gentleman knows full well that the grants which have been made to the London Docklands development corporation for the development of docklands as a whole are a matter of public record and are there for the House, the country and the world to see. The decisions on relocation will be taken in full consultation with the trade unions that represent the staff. The decision which I have just announced to narrow the options was taken on the basis of a value-for-money survey that was put in place, following my predecessor's much welcomed decision to vacate the Marsham street building so that it could be demolished.

Mr. Robert Adley: Did my right hon. and learned Friend note that the one group whom the hon. Member for Dagenham (Mr. Gould) failed to mention was the taxpayer, and that most normal people will regard the Secretary of State as doing nothing less than his duty in trying to ensure better value for money for the taxpayer?


If I may ask my right hon. and learned Friend one specific question about the transport infrastructure, what principle lies behind the proposition that the taxpayer has funded £250 million for one and a half miles of road while the private sector is expected to fund part of the cost of the railway line?

Mr. Howard: I am grateful to my hon. Friend. He is right to identify the criterion that we have applied and pursued in considering this matter. He referred to the cost of the Jubilee line extension in the second part of his question. It is widely accepted that there is a role for mixed public and private sector funding in such a development. The owners of the Canary Wharf development, whoever they may be, will benefit from the fact that there will be a station at Canary Wharf on the Jubilee line extension. That is why Olympia and York thought it appropriate to offer a contribution of £400 million towards the cost of the line and why I have no doubt that any other owners of the development will think it right to make a similar contribution.

Mr. Simon Hughes: Does not the Secretary of State's announcement confirm that the rescue or salvation of Canary Wharf will not be achieved only by market forces, any more than was the development of docklands in the 1980s? Is it not true that, although the jobs of civil servants are important, the jobs of people in the docklands boroughs, with some of the highest unemployment rates in the country, are far more important and far more a reason for ensuring that the project does not fail?
If civil servants are to travel from Whitehall to docklands, is it not the most ridiculous proposition in the world that there should be no direct rail link? Do riot the Government realise that the money for the Jubilee line extension must be secured by the end of this month, since otherwise the team of engineers and so on working on it will not be in place and the project will fall apart?

Mr. Howard: On the hon. Gentleman's last point, the team at London Transport will be kept in being while negotiations take place over the completion of the Jubilee line extension. I was interested in the hon. Gentleman's observations about jobs in docklands. He did not mention the fact that the number of jobs in docklands has doubled since the development corporation was established, and there are now 60,000 people employed in docklands. I would have thought that the hon. Gentleman would want to give some credit for what has been achieved by the corporation during its existence. The hon. Gentleman seemed to be coming perilously close to suggesting that the Government should bale out this project. That is not our intention, and we shall not do so.

Mr. Roger Moate: My right hon. Friend is already aware of the widespread welcome for the imminent demise of Marsham street. However, if we are to make Westminster a more green and pleasant land, is it not illogical to add to the office surplus by putting even more offices in that location?
Does my right hon. Friend agree that there is widespread acceptance that the Jubilee line extension must be built, but that this is a time to be looking not for less private sector contribution but for other means of bringing more private sector participation into that underground line and others as well?

Mr. Howard: My hon. Friend's first point anticipates a decision that has not yet been made about what is to happen at Marsham street. I agree with him that the principle of mixed private and public sector funding for developments such as the Jubilee line extension has obtained increasing acceptance and will, I expect, play a continuing role in such developments in the future.

Ms. Mildred Gordon: You may be aware, Madam Speaker, that more than 1,000 of my constituents are taking legal action to seek redress for the disruption caused to their lives by the Canary Wharf development and the Limehouse link road. My constituents want to know whether they will obtain any benefits from the public money that has gone into the area. If Government Departments move to Canary Wharf, will the Government have a policy of employing local people in the civil service, or will there be only part-time cleaning jobs and other jobs of that ilk?
If 5,000 civil servants move into the area, will the Jubilee line extension be built or will my constituents have to suffer daily the nightmarish congestion that they suffered whenever there was an event at the arena? Will the Government stop the LDDC giving crazy planning permission for further superfluous office developments such as that granted to Olympia and York for Heron Quays only a few weeks ago? Will the Secretary of State confirm or deny the recent press statements that the LDDC is to give land to developers and allow deferred payment until they make a profit? If the right hon. and learned Gentleman disputes my figures of nearly £3 billion of direct and indirect subsidy, when will he produce his own figures for the public money involved?

Mr. Howard: On the last point, I have already made it clear that the funds made available to the London Docklands development corporation are a matter of record and have been published more than once. I am surprised by the attitude that the hon. Lady adopts to the considerable number of jobs that have been created in docklands. I should have thought that she would welcome that.
As for the relocation of staff who work for the Department at the moment, wherever they live, we shall be assisting them when we move to docklands, as I expect we shall be able to do. I should have thought that the hon. Lady would be as keen as anyone to encourage the private sector to contribute £400 million to the cost of the Jubilee line extension, which will secure that extension's future.

Mr. John Wilkinson: Will my right hon. and learned Friend be realistic and recognise that civil servants such as those in my constituency in north-west London, who are prepared to put up with a difficult journey to central London because they welcome the good schools and the pleasant residential area in which they live, will not be prepared to travel to the Isle of Dogs unless good, effective and reliable high-speed surface transport is in place? To that end, is it not vital that the Jubilee line be completed—if necessary, with public money —and that the crossrail link be finished, with a platform at Northwood in my constituency, which was promised and then taken away?

Mr. Howard: I very much hope, and indeed expect for the reasons that I have given, that the Jubilee line extension will be completed. That line, and the


considerable improvements to the infrastructure of docklands, will make it quite feasible for civil servants to travel to docklands from my hon. Friend's constituency and from other parts of London and surrounding areas. As I said in my statement, we shall put in place arrangements to help to minimise the effects of any move on Departments' staff.

Mr. Peter Shore: Is the Secretary of State aware that he is dealing with the biggest failure of planning in post-war Britain? It is a perfect example of the folly of proceeding with a massive office development without making any sensible provision for public transport. Will he now answer, truthfully and directly, the question that was put to him by my hon. Friend the Member for Dagenham (Mr. Gould): what is the cost, in terms of incentives paid for by the taxpayer, of the enterprise zone—in particular, the amount of money available by the suspension of the business rate for office development at Canary Wharf—and of the special facilities offered to assist construction by writing off initial allowances against expenditure? What is the cost to the taxpayer of those great concessions for Canary Wharf? Does he not accept that, if that vast amount of money is correct—we believe the figure to be correct—he has not given the House, or anyone in the east end, any prospect for the future? He is apparently prepared to write off completely his former investment.

Mr. Howard: The right hon. Gentleman's criticisms are entirely misconceived. I was astonished by the form in which they were made, because, when he held my office, docklands was renowned for dereliction—and for nothing else. Under the London Docklands development corporation, the position of docklands has been transformed, as the right hon. Gentleman knows only too well. [Interruption.]

Madam Speaker: Order. I would be very much obliged if hon. Gentlemen would not bawl and shout from sedentary positions.

Mr. Howard: The right hon. Gentleman may be aware that the total sums made available to all enterprise zones amount to £660 million and that there are no figures available for individual enterprise zones. The benefits made available to docklands are in no small part responsible for that. The number of jobs in docklands has doubled over the relevant period. I hope that the right hon. Gentleman will welcome that.

Mr. Mark Wolfson: Does my right hon. and learned Friend agree that there is an interesting comparison between the new business centre development in docklands and La Defense in Paris? The development in Paris did not have an easy route, but in the end it has been highly successful. I am therefore optimistic that the docklands development will also be successful. However, there is one difference between Paris and here. The strategy of putting in a very effective public transport infrastructure was followed there, and I hope that my right hon. and learned Friend will give that a high priority here.

Mr. Howard: I have no doubt that the future of docklands will be as exciting as we originally contemplated it would be, and that it will realise its full development

potential. We have, of course, done a great deal to improve the infrastructure in and towards docklands. We are building roads, and some roads have been completed.
I have referred to the £400 million contribution offered by Olympia and York to the Jubilee line extension, which we expect any other owner of Canary Wharf to contribute. The taxpayer is contributing £1.5 billion towards the cost of the Jubliee line extension. We want and expect to put in place in docklands a partnership between the private sector, which I hope we shall see not only in docklands, but elsewhere in our country in future.

Mr. Nigel Spearing: Does not the Secretary of State agree that the collapse of Canary Wharf exemplifies the collapse of Thatcherite economics? Is it not a fact that, in addition to the inducements in the enterprise zone outlined by my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore), there was no inquiry into the strategic planning implications of Canary Wharf, that public funds met most of the cost of the Bank extension and that the Jubilee line extension would not have been built without the presence of Canary Wharf? Is it not now a fact that the frontiers of the state statutory have been rolled back, that enormous sums of public money have rolled in and that the powers of Ministers and central Government have greatly increased, which has given them arbitrary powers of patronage over companies that come in? Even with all that, there is no assurance of success.

Mr. Howard: There is no question of arbitrary behaviour and no question of patronage. It is not the case that there was an absence of planning in docklands. The London Docklands development corporation drew up a plan and consulted the local authorities on it. The difference is that, under the LDDC, action has been taken to deal with the dereliction which was the hallmark of docklands when the local authorities were responsible for planning and development decisions. We have seen great progress made since the corporation was put in place.
The hon. Gentleman began by referring to the collapse of Canary Wharf. Canary Wharf has not collapsed. The fact that the company that developed it has now appointed administrators is an entirely different matter. There is a clear distinction between the fate of one private sector company and the fate of docklands. Docklands will realise its development potential in the future, to the benefit of all those who live in it and of the hon. Gentleman's constituents.

Mr. Henry Bellingham: Does my right hon. and learned Friend agree that, given the scale of dereliction and unemployment in docklands, one should pay tribute this afternoon to the corporation, of which Canary Wharf is only one part, and to the vision and courage of the Reichmann brothers, without whom the development would not have been possible? Although they failed, they failed in the teeth of the worst recession since the war. Does my right hon. and learned Friend agree that, as well as the Jubilee line, there is obviously a need to improve road communications? What is the up-to-date position on roads?

Mr. Howard: I can certainly help my hon. Friend with regard to the question of roads. Great progress is being made with the Limehouse link and the associated docklands highway. Those key road links will help greatly


to assist movement into and out of docklands. The docklands light railway is now operating to 95 per cent reliability. The perception of its reliability that still undoubtedly persists is no longer consistent with its performance.

Mr. Robert Sheldon: Is the Secretary of State sure that all those 2,000 jobs need to remain in London? Is there not a case for considering the dispersal of at least some of them? Is he aware that London weighting will still be allowed in docklands, but it is not allowed in Manchester, the north-east, Scotland or Wales? It has been estimated that London weighting can add up to £10 per square foot to the rent of such premises in London.

Mr. Howard: A very large proportion of my Department's staff already work outside of London. The decision to relocate in docklands relates to staff who need to be in London because they need to have regular contacts with Ministers, but do not need to be in quite such close proximity as to justify the retention of accommodation in Westminster. The point made by the right hon. Gentleman was taken into account.

Several Hon. Members: rose—

Madam Speaker: Order. We must now move on

Yugoslavia (Sanctions)

The Secretary of State for Foreign and Commonwealth Affairs (Mr. Douglas Hurd): As hon. Members will know, the United Nations Security Council decided on 30 May to impose sanctions on Serbia and Montenegro. The resolution contains one of the most comprehensive series of measures ever adopted by the United Nations. They include a ban on air links, a trade and oil embargo, a freeze on assets, a ban on official sporting contacts and an agreement to reduce the level of staff at diplomatic missions of the self-proclaimed Federal Republic of Yugoslavia. The ban on arms sales adopted last year remains in force.
This and other elements of the embargo will be monitored by the Security Council committee established by one of the earlier resolutions on Yugoslavia. We shall play a full part in the work of that committee. We are also taking steps at home to implement the sanctions in the United Kingdom and dependent territories. Interim measures have been taken by the DTI and the Treasury, and Orders in Council will be put to the Privy Council on 4 June. The Yugoslav ambassador has been asked to leave.
The vote on this resolution reflects almost total unanimity among the international community. The world has been shocked by the persistent shellings and killings, and particularly recently by the carnage in Sarajevo. The resolution reflects condemnation of Serbia's brutal and expansionist policies under its present leadership. President Milosevic has refused to rein in the Serbs in Bosnia and has actively supported them through supplies of men and equipment. Under the pretext of withdrawal, he has transferred large parts of the federal army to local command in Bosnia.
Those warlords are using terror as a political weapon to create ethnically pure Serbian areas which will be attached to Serbia itself. There was never any justification for that policy. Before the fighting began, there was no threat to the welfare of the large Serbian community in Bosnia-Herzegovina from either Croats or Muslims. Croatia too has profited from the situation by infiltrating men and equipment into Croatian-inhabited areas of Herzegovina.
We hope that the mandatory provisions of resolution 757 will convince the leadership in Belgrade that they must abandon their present policies. We do not wish to penalise the Serbian people or to destroy their economy, but we must bring home to Mr. Milosevic and his supporters that the international community cannot tolerate his present policy.
The immediate requirement is for a complete cessation of hostilities. Next we must establish conditions in which the International Committee of the Red Cross and the United Nations High Commissioner for Refugees can pursue their humanitarian tasks. They have our full support: we have so far given a total of £9.68 million to their appeals. The Belgrade authorities must also take steps to immobilise and disarm the irregular units which have been responsible for so much of the mayhem. This should allow the displaced persons who have now fled to all the five remaining republics to return to their homes. This in turn should lead to a political solution on the lines already prepared by and in principle agreed through the


good offices of Lord Carrington. I am in close touch with my European and United States colleagues as we work for those objectives.

Mr. Gerald Kaufman: I thank the right hon. Gentleman for his statement. We give our full support to United Nations Security Council resolution 757, and we urge that the United Nations sanctions should be rigorously enforced. As the right hon. Gentleman will recall, Opposition Front-Bench Members urged such comprehensive United Nations sanctions many months ago. It is possible that the situation might not have got so tragically out of hand if action had been taken sooner, but, now that action has been taken, we must hope and work for its success.
The right hon. Gentleman has not mentioned the use of force, and I welcome that. The situation is far too confused for forcible intervention from outside to do any positive good. It is certain that force would lead to further unnecessary bloodshed and increase the number of people at risk. I hope that the Government will stand out inflexibly against any suggestions of forcible intervention by the European Community.
It is my view that the excellent and admirable efforts of the European Community and its tireless representative, Lord Carrington, have been damaged, and perhaps to some extent even negated, by the unwise capitulation of European Community Foreign Ministers to the insistence of the German Government that every little self-declared republic in what was Yugoslavia should be given international recognition. That policy may have been a further incentive towards a disintegration that was always inherent.
The European Community should have no military role in this conflict or indeed in any other. The need is not to extend the conflict but to maintain it. The Foreign Secretary is right to assign principal responsibility to Mr. Milosevic and the Serbs. The acts of destruction of the Serbs toward Dubrovnik, although not the worst of their atrocities, are in their sheer wantonness symbolic of their lack of regard for a country which they say they want to safeguard.
The Foreign Secretary is equally right to make it clear that the Serbs are not the only guilty party—that others share that guilt. No solution will be acceptable unless it is based on the restoration of stability, coupled with the safeguarding of all minorities, and that includes Serbian minorities. We hope that the United Nations actions will provide a possibility for such a solution, and it is on that basis that we give the United Nations our full support.

Mr. Hurd: I am grateful to the right hon. Member for Manchester, Gorton (Mr. Kaufman). In view of his personal announcement today, may I say how much I shall miss him? [HON. MEMBERS: "Hear, hear."] Other hon. Members will also miss him. The right hon. Gentleman has made for himself a reputation for a partisan ferocity which I can do nothing about and which I do not want to spoil this afternoon, as he has not displayed it. In my dealings with him from the Foreign Office and the Home Office, our exchanges have sometimes been pointed, but never excessively so. In the necessary dealings between us outside the House, I have found him to be invaluably straightforward and almost invariably helpful.
The right hon. Gentleman made a number of interesting points. He suggested—he may be right—that earlier sanctions might have prevented some of the trouble. There would certainly have been no support for sanctions of that kind at an earlier stage, as I found when I suggested oil sanctions towards the end of last year. Recent events—in part, the persecution of Muslims in Bosnia—have changed the situation in the United Nations.
The right hon. Gentleman wisely referred to the use of force. I notice various operations now being sketched in the newspapers. It is much easier to conceive of such operations in theory than to launch them in practice. It is much easier to launch them than to see how they could successfully be brought to an end, so caution on the subject is necessary.
I do not wish to go into the argument about recognition all over again. As I told the House in the Queen's Speech debate, the best answer would have been Yugoslavia by consent, but in the end that was not attainable. Once we said goodbye to that hope, towards the end of last summer, we were left with a series of republics. The question of how one dealt with and recognised them became a matter of timing rather than principle.

Several Hon. Members: rose—

Madam Speaker: Order. I remind the House at this stage that, if hon. Members ask precise questions on the Foreign Secretary's statement and we have short replies, it obviously follows that I shall be able to call far more Members.

Mr. Peter Fry: Of course there is agreement that international action was necessary to try to stop the fighting in Yugoslavia, but may I put it to my right hon. Friend that stopping the fighting should be the end purpose? Therefore, will he make it clear to those who advocate military action in Yugoslavia that it is much easier to get into a warlike situation there than to get out of it? Above all, we must avoid Yugoslavia becoming not just the Israel of the Balkans but the Vietnam of Europe.

Mr. Hurd: My hon. Friend knows a good deal about Yugoslavia, and his words of warning are wise. What we can do and are doing is to offer negotiation, a conference and ideas, monitor the ceasefire if it is achieved, and give trade and economic help to those who co-operate and take measures against those who do not. That is necessary, and that we will do.

Mr. Robert N. Wareing: Will the Foreign Secretary accept that the majority of Members of this House applaud the action that has been taken by the United Nations to bring an end to the bloodshed in Yugoslavia? In future policy decisions within the European Community, will he take into account two possible dangers? First, we must be sufficiently outspoken about the human rights record in Croatia and especially the Croatians' attitude to the Serbian minority there. Secondly, while we would like to see the end of the Milosevic regime—I certainly would—there is a danger that the extremists who may control the guerrilla units in Bosnia will take a hand. Instead of better than Milosevic, we may have worse. Some worse people are around.

Mr. Hurd: On Croatia, the hon. Gentleman is right. It is important that the Croatian Government should carry


through the legislation to protect the rights of its minorities to completion, as Lord Carrington has recommended. We are watching that carefully. I do not want to pick and choose between the different candidates for rulers or the Government of Serbia. That is not our job. Our job is to ensure that the Serbs and Montenegrans, with whom we have no basic quarrel, observe the rules of international life, as they have emerged.

Mr. Michael Jopling: Is my right hon. Friend aware that the huge majority of people will support him in his hopes that the proposed sanctions will create a change of policy in Belgrade? But will he recall that, often before from that Dispatch Box, pious hopes have been expressed that sanctions will cause the collapse of a regime, whether Rhodesia or, more recently, Iraq? The truth is that sanctions rarely seem to cause collapse. Such hopes are often followed by further discussion about the use of force. Will the Foreign Secretary give the House an undertaking that if, as may well happen, there is increasing talk about force in the future, he will go towards that option with only the greatest possible circumspection?

Mr. Hurd: I agree with my right hon. Friend. There is no magic about sanctions. However, I remind him that, neither in the case of Iraq nor now in the case of Serbia and Montenegro, do sanctions aim to change a regime. That has never been their purpose in those cases. I agree exactly with the formulation of the second part of my right hon. Friend's question.

Mr. Dennis Skinner: Now that sanctions appear to be flavour of the month for the Tory Government, what has changed in respect of the sanctions that they refused to apply to South Africa and those that were supposed to be implemented against nations in the Gulf? What is new?

Mr. Hurd: What is new is that there has been a good deal of progress in South Africa, which is therefore the vindication of the stand that we took and of the lifting of most of the sanctions by the international community, following our lead.

Mr. Michael Colvin: My right hon. Friend's statement will be welcomed, as will resolution 757. I think that the House shares the view expressed by my right hon. Friend the Member for Westmorland and Lonsdale (Mr. Jopling), that it is sometimes extremely difficult to make sanctions work. We have certainly seen that elsewhere in the world. Can my right hon. Friend tell the House what consideration has been given to a blockade to make sanctions work, and especially to a naval blockade, because it runs short of using force?

Mr. Hurd: There are no plans for that at present. Under international law, there is an obligation on all members of the United Nations to comply with the resolution, and a monitoring committee has been set up in New York. We shall have to see what happens, especially with regard to oil supplies, which traditionally have come down the Danube through Romania, but it is premature to assume that people will not comply with their obligations.

Mr. Tony Banks: Does the Foreign Secretary recall that, about eight months ago, some of us argued for sanctions to be taken against the

then Yugoslavia, especially against the Serbs, and that we met with blank refusals? Will he tell the House what attempts will be made to monitor sanctions? He just mentioned oil and, as there are no natural oil resources within Serbia, if oil can be cut off clearly sanctions will work. What monitoring will take place?

Mr. Hurd: I have just answered the hon. Gentleman's question. He was too busy preparing it to listen to my answer. He is right about the importance of oil. As he knows, I suggested oil sanctions some time ago, but there was no support for them. I am glad that there is support now. There is some oil production in Serbia and Croatia, but most oil is imported. It is therefore important that the flow of oil should be monitored by the sanctions committee, which I described to the House when the hon. Gentleman was not listening.

Mr. Nicholas Budgen: Will my right hon. Friend explain how the sad fighting in Yugoslavia affects British national interests? Or is it the case that we have now taken on the role of some sort of second-class world policeman, whenever we can find a similar policeman among what he grandly calls the international community?

Mr. Hurd: My hon. Friend is entitled to take that view, but I do not think that it is shared by many of his constituents. When, night after night, people see on television destruction and massacre in a European city, most of them do not expect us to send in troops, but they expect us to take some sensible action, if we can, to bring that suffering to an end. I am not in favour of exaggerating what we can do, or of pretending that we are or can be a policeman. I am not speaking on behalf of the Twelve, or of the United Nations: I am merely saying that, where we can help to bring such suffering to an end, I am sure that it is the wish of the House and the country that we should do so.

Mr. Charles Kennedy: Does the Foreign Secretary recognise that, welcome though the imposition of sanctions is, they are likely to bear down disproportionately on the Albanian community in Kosovo? As well as working with his colleagues at European Community and United Nations level to make sanctions effective, is he bearing in mind the need for continuing diplomatic pressure to ensure the proper restoration of autonomy to Kosovo?

Mr. Hurd: The hon. Gentleman has mentioned an important matter. That is the next possible tragedy spot, if one may describe it that way. It is important for the Serbs to accept the need for full autonomy for Kosovo. I discussed with Lord Carrington this morning, as well as with the Portuguese Foreign Minister—who is President of the Council of Ministers—how we can bring diplomatic pressure to bear in Tirana and Belgrade.

Mr. James Kilfedder: It is accepted that Serbia is not the only offending party in the region. Therefore, sanctions should surely be imposed on Croatia to force it to stop its violence.

Mr. Hurd: The arms embargo applies to all the former republics of Yugoslavia. I have mentioned Croatia, but I have tried to get the balance right, which is increasingly accepted in the House. The Croatians are not and have not been blameless, but the main responsibility for the


mayhem, killing and suffering rests with Serbs, whether Bosnian Serbs, irregulars or those under the direct control of Belgrade.

Mr. Tam Dalyell: In relation to his answer to my hon. Friend the Member for Newham, North-West (Mr. Banks), does the Foreign Secretary recollect that some of us suported him most vocally, in and out of the House, on the imposition of oil sanctions at the beginning of the crisis?
Does the Foreign Secretary think that it is wise to insist that the Yugoslav ambassador withdraw? Did he hear the ambassador say last night on "The World Tonight" that perhaps this is the time when he is most needed? What is the purpose, other than for reasons of a diplomatic dance, of making the ambassador go? Finally, are we sure that arms and oil are not being supplied by Iraq to Serbia?

Mr. Hurd: On the ambassador, it was part of the Security Council resolution to reduce levels of diplomatic representation by the former federal republic of Yugoslavia. It will, of course, keep representatives here: we are not expelling the whole diplomatic mission. It was right, in line with what others are doing and right in the circumstances, that the ambassador should be asked, courteously but firmly, to go.
Supplies of oil to Serbia and Montenegro—

Mr. Dalyell: I voted for the oil embargo.

Mr. Hurd: Yes. However, it was not the hon. Gentleman's vote that was necessary on that occasion, but support in the United Nations, which has only recently been forthcoming. All possible breaches of the embargo, particularly in oil, need to be monitored carefully.

Mr. Patrick Cormack: Although I agree with my right hon. Friend about the ambassador, what justification is there for allowing the building that he has been occupying to continue to enjoy the status of an embassy?

Mr. Hurd: We are in a bit of limbo on that, and my hon. Friend has put his finger on the illogical position. We have an embassy in Belgrade and it is important to keep contacts going. Therefore, we do not intend to close the Yugoslav mission here. Equally, Yugoslav representation at the United Nations is in a type of limbo. If the situation continues and sanctions do not do the job we hope, we shall clearly have to consider such questions again.

Mr. David Trimble: I welcome the condemnation of the expansionist policies of the Serbian leadership, which were clearly demonstrated years ago when it overthrew autonomy in Kosovo and Vojvodina. Its intention to create a greater Serbia was clearly signalled last year and it is a matter of regret that the international community did not respond quickly enough, because the tragedies might have been averted.
Is the Foreign Secretary aware that there is still some unfinished business in greater Serbia, in the region of Macedonia? Would it be possible to take some proactive steps to prevent that region from being ignited, because there are countries other than Serbia that might fish in those troubled waters?

Mr. Hurd: There certainly are: the hon. Gentleman is quite right. I am glad that, in Skopje, a mission from the European Community is establishing a contact with the Macedonian authorities for the first time. I hope that we shall receive a report next week on Macedonia's needs. The hon. Gentleman, who follows this subject, will know that the attitude of the Greek Government presents a substantial difficulty to recognition of Macedonia, but that does not debar the type of mission that is in Macedonia now.

Mr. John Wilkinson: May I express my appreciation to my right hon. Friend for the constructive role he took in securing sanctions against Serbia by the United Nations? They are a valuable instrument of pressure to demonstrate to the Government in Belgrade and to the wider world that force should not be allowed to prevail against the democratic expression of self-determination. If that were allowed to prevail, a potentially explosive and damaging example would be given to central and eastern Europe. Is it not therefore necessary that physical measures underpin the sanctions —perhaps in the form of a naval blockade or the inspection of air cargoes at their point of departure?

Mr. Hurd: Let us see how we get on. I agree with the first part of my hon. Friend's question. The monitoring committee, as it showed effectively in the case of Iraq, will be able to pick up breaches, and we will then need to decide what measures might be useful in dealing with them.

Mr. David Winnick: Is the Foreign Secretary aware that the majority of people in Britain are bound to support the policy of sanctions, especially when they see on their television screens, and read about, massacres such as that which killed outright people standing in a bread queue last week—another crime against humanity? Does he accept that there is almost unanimous opinion in the House—and, in my view, in the country at large—that no military force should be used by outside countries, certainly not by Britain, and that British troops should under no circumstances get involved in such a vicious Balkan civil war?

Mr. Hurd: I am grateful to the hon. Gentleman for making those points. He picks up a point that several Members on both sides of the House have made about the need for extreme caution in that respect.

Mr. Geoffrey Dickens: Will my right hon. Friend please confirm that there are no circumstances under which British forces would be deployed on Yugoslavian soil, apart from monitoring activities for the United Nations, bearing in mind that they would not know who the enemy was and would be caught in the crossfire, meaning that we should be sending people to be slaughtered? The Foreign Secretary could perhaps concede that we may need to play our part in a blockade if sanctions did not work. I hope and pray that they work. I hope that my right hon. Friend will go so far as to say that British troops will not be deployed on Yugoslavian soil.

Mr. Hurd: My right hon. Friend or I have told the House that we are contributing a field ambulance, involving about 250 men, to the United Nations force


which is being deployed in Croatia. I note the extreme reluctance which my hon. Friend voices for anything further.

Mr. Alan Williams: Is it possible for assistance to be given to Yugoslav citizens in this country, some of whom are afraid to return home because of the fighting in their home areas and others who want to return but who came here on return tickets and are stranded, and short of money, because of the suspension of flights?

Mr. Hurd: This situation has many casualties, some of them much more poignant than the hon. Gentleman describes. Many people's lives are disrupted or worse by this situation. I am sure that the Home Secretary will look at any individual cases of people wanting to stay here, but the rules are the rules, and of course people know them.

Mr. Calum Macdonald: Is it not a case of adopting a policy of too little, too late, making the situation much worse and more difficult to deal with? Will the right hon. Gentleman give details of the time scale within which he hopes the sanctions will work? Will he make it clear that there must be a cessation of hostilities by the Serbians within days rather than weeks, failing which, other options will have to be considered?

Mr. Hurd: The hon. Gentleman will have heard quite a consensus of views up to this point on the concept of the use of force. I do not think it would be wise to impose a time limit. The Security Council has not done so. It has imposed an unprecedentedly severe package of measures, which will bear hard on the authorities and people in Serbia and Montenegro. We must now see how that works out.

Mr. D. N. Campbell-Savours: To what extent did Mr. Baker's statement force the hand of people such as the right hon. Gentleman?

Mr. Hurd: The American Secretary of State has always made it clear that he expects Europe to take the lead on this issue. It is not a matter on which the Americans have taken a consistent forward line. The fact that, faced with the latest killings in Sarajevo, he expressed an American opinion so forcefully, greatly helped the proceedings in the Security Council. A significant fact was the positive Russian vote, which would have come as quite a surprise in Belgrade and will, I hope, help to produce a good effect.

Mr. John McFall: As we discuss the matter now, certain militiamen are still pounding Sarajevo, killing people in bread queues and Red Cross personnel. Will the right hon. Gentleman ensure that the United Nations takes its responsibility seriously, for example by considering the control of Sarajevo airport by the UN? The Institute of Strategic Studies and other military people say that, if we had the will, the fighting could be stopped within 24 hours. Will the right hon. Gentleman ensure that the UN undertakes such activities and provides adequate protection for the land convoys that are taking food and medical equipment to the beleaguered people of Sarajevo?

Mr. Hurd: I hope that the hon. Gentleman will think this through. He suggests that we should consider taking over Sarajevo airport. It is difficult to imagine Governments being willing to contribute troops to fighting their way to control over the airport; if they succeeded, the temptation—indeed, the incentive—to go on and take over control of the city would be substantial, because the airport without the city is pointless. Therefore, troops would be involved not just in air strikes but in operations on the ground, which are easy to conceive but hard to launch, and even harder to bring to a successful end.

Points of Order

Mr. Michael Meacher: On a point of order, Madam Speaker. As more than 5,000 pensioners of the Maxwell pension schemes have been told that they will not receive any further pensions, and as Maxwell-controlled Liechtenstein companies, beyond the reach of the creditors and pensioners, have been uncovered, I rise to ask whether you have received any request from the Secretary of State for Social Security to make a statement on what steps he proposes to take to protect these pensioners from falling into poverty, through no fault of their own, over the next few weeks.
We keep being told that the Secretary of State is about to make a statement on the necessary reform of pension fund legislation, which the Government have studiously neglected for the past 10 years. What is urgent is a statement on the position of the Maxwell pensioners. As the Government are clearly liable, because of their failure to implement relevant protective regulations under the Social Security Act 1990, and also because of the manifest failure of the Investment Management Regulatory Organisation, will you use your good offices to ensure that we have a statement in the next few days on the essential issue of protecting the Maxwell pensioners?

Madam Speaker: The hon. Gentleman gives me more authority than I have. I have no means of instructing a Minister to make a statement. Perhaps I can answer the hon. Gentleman by saying that, had a statement been intended, it would have been on the annunciator. I received no such notice.

Mr. Simon Hughes: On a point of order, Madam Speaker. I think that this is a matter on which you are competent to rule. How can we get the Government to hold a debate on their policy on environment and development before the Rio summit? Am I right in thinking that the only way that Opposition Members can force such a debate is for a motion of no confidence in the Government's policy to be tabled today, and for that motion to secure the support of the Leader of the Labour party? Would not that mean that it had to be the first item of business tomorrow and had to be the subject of debate? We would then at last make sure that we debated the subject before the Government made policy, changed policy or gave up policy in Rio on behalf of this country.

Madam Speaker: If the hon. Gentleman were to reflect, he would realise that half-day debates are given to Opposition parties. He may care to use such an opportunity to debate this important subject.

Mr. Hughes: Further to that point of order, Madam Speaker. You are right, but there are no Opposition days set down in the notified days of business. I am led to believe by what I have read in "Erskine May" that one can get priority for a debate through tabling a motion of no confidence. That point is not made explicit in "Erskine May", so I would be grateful if, on advice, you told us whether that is the way to secure such a debate this week.

Madam Speaker: If the hon. Gentleman had looked far enough into "Erskine May" he would have seen that no

Speaker ever gives that type of guidance across the Floor of the House—even me. However, if he would like to come to see me, I will try to assist.

Mr. David Winnick: On a point of order, Madam Speaker. Will you confirm, as your predecessors have always done, to the best of my knowledge and certainly within my parliamentary lifetime, that one of the jobs of the House of Commons is to defend the interests of ordinary people? If only one person is subject to injury, that person should still be able to have the matter raised in the House of Commons. I ask you this because, as my hon. Friend the Member for Oldham, West (Mr. Meacher) has pointed out from the Front Bench, there are pensioners living a life of destitution because the pension that they expected to have has been stolen from them by one of the most notorious of all crooks.
As Ministers refuse to make a statement, Madam Speaker, and bearing in mind that the Maxwell family apparently owns considerable assets abroad, what can be done to try to ensure that those people, who are after all entitled to justice, have their claim dealt with in the House of Commons?

Madam Speaker: The hon. Gentleman has been here long enough to know that that is not a matter for the Chair. The Chair is not in control of the business of the House. It is for the Government, through the usual channels, to determine business.

Mr. Dennis Skinner: Further to that point of order, Madam Speaker. Is it not also true that, notwithstanding the fact that the Speaker has no power to organise business, you would have considerable power if an application were made under Standing Order No. 20 for a debate on the Government's attitude to Rio in order to try to influence the Government before they made their decision in Brazil? Is it not also true that you would have similar powers in the event of a private notice question? If there were an application for a debate under Standing Order No. 20 or for a private notice question, you would have a good case for giving some guidance on how the matter could be dealt with in the House. In the end, Madam Speaker, you do have power to help in the matter, which is particularly relevant since the Opposition do not have an Opposition day on which to raise the matter with any immediacy.

Madam Speaker: As I am sure the House appreciates, I always look extremely carefully at all private notice questions and applications under Standing Order No. 20 that come across my desk.

Mr. Max Madden: Further to that point of order, Madam Speaker. Am I right in thinking that, although it is usual for Standing Order No. 20 applications to be submitted to you before midday on any sitting day, such an application can be made at any time? For instance, such an application could be made now, on the usual basis that the matter is urgent, specific and requires immediate attention, if you were prepared to accept it.

Madam Speaker: The hon. Gentleman is not quite right. I could consider such an application only if the matter was of extreme urgency and the urgency was not known before 12 noon on the day in question.

Mr. Geoffrey Dickens: Further to that point of order, Madam Speaker. Certainly you and I were here during Prime Minister's questions, but I am not sure which other hon. Members were present. If I recall correctly, my right hon. Friend the Prime Minister made it clear from the Dispatch Box that he hoped to secure an agreement at Rio and that that would not be the beginning and the end of the matter but that it would continue for many years with actions and agreements. Therefore, there can be no urgency about such a debate.

Madam Speaker: We are now involving ourselves in debate. We need not repeat the Prime Minister's words. They will be in Hansard for all of us to see.

Statutory Instruments, &c.

Madam Speaker: With permission, I shall put together the motions relating to Statutory Instruments.

Motion made, and Question put forthwith pursuant to Standing Order No. 101(3) (Standing Committees on Statutory Instruments, &c.).

LEGAL AID (SCOTLAND)

That the draft Advice and Assistance (Financial Conditions) (Scotland) Regulations 1992 be referred to a Standing Committee on Statutory Instruments, &c.
That the draft Civil Legal Aid (Financial Conditions) (Scotland) Regulations 1992 be referred to a Standing Committee on Statutory Instruments, &c.
That the draft Advice and Assistance (Assistance by Way of Representation) (Scotland) Amendment Regulations 1992 be referred to a Standing Committee on Statutory Instruments, &c.—[Mr. Robert G. Hughes.]

Question agreed to

Orders of the Day — Finance Bill

Order for Second Reading read.

The Financial Secretary to the Treasury (Mr. Stephen Dorrell): I beg to move, That the Bill be now read a Second time.
It is now nearly three weeks since the House approved the resolutions on which the Bill is based. On that occasion, I said that the debate that underlay the Bill was a continuation of the debate which decided the general election. It is not simply a debate which was relevant to the general election—it is a debate about the decisive issue in the general election.
The issue that was at stake and was decided on 9 April is as clear as it is simple. The question was whether the electorate supported the tax policy set out with great clarity by the Government, or a tax policy espoused by one of the Opposition parties. The electorate gave a clear and unambiguous answer, and I clearly think that their answer was right.
The Government believe that tax policy should be driven by two primary considerations. First, we believe that, in a free society, the first call on the fruits of wealth creation rests with those who are responsible for that wealth creation process. We firmly believe that, if somebody takes a risk, makes an investment, commits extra effort, and finds a better solution to an economic problem and thereby creates wealth, that person has a right to the lion's share of the economic benefits that those actions create.
The fruit of economic activity is not owned collectively but owned by the individual or company that creates the wealth. That is not to say that wealth creators have no responsibility to others in society. We all acknowledge that we have wider responsibilities. Overwhelmingly, people who are responsible for wealth creation recognise those responsibilities. Tax policy must recognise that the first call on the wealth created by the people who work in our economy falls with the people who are responsible for that creation process.
We believe also that tax policies must recognise another and parallel principle—that the limiting of the tax burden, particularly the marginal incidence rate, is right not only in principle but in practice, for a severely utilitarian reason. Any economy relies for success on people taking risks, making investments, committing extra effort, and solving economic problems. That is the engine that drives the wealth-creation process. It is powerfully in the interests of the whole community to maximise incentives, encourage people to engage in that process, make those activities worth while, encourage people to undertake them, and —most important of all—reward those who do so successfully.

Dr. John Marek: In that case, why did the tax burden increase under the Conservatives in the 1980s? It was higher in the 1980s than ever it was in the 1970s.

Mr. Dorrell: I am seeking to set out clearly why it is important to limit the tax burden and marginal rates of tax. I am not making a call to arms in defence of privilege.


My comments reflect clear recognition that we have a common interest in rewarding success. The individuals responsible for wealth-creating activity benefit, as they have every right to do. More importantly, the whole community benefits if, as a result of that more incentive-oriented approach, the economy becomes more successful.
We have the clearest possible illustration of that principle in the take home pay since 1979 of the man on average earnings. I am talking not about someone on a fancy City commission but about a man on average earnings. Between 1974 and 1979, his average take-home pay rose 1 per cent. in real terms. Since 1979, that same man has seen his take-home pay rise 39 per cent. in real terms—£78 a week in today's terms. That is a measure of the effectiveness of a more successful economy driven by the incentive approach that this Government adopt.
Virtually all the Opposition parties fail to grasp that common interest in rewarding success. In the Ways and Means debate three weeks ago, the hon. Member for Gordon (Mr. Bruce) illustrated the extent to which the Liberal Democrats do not understand that essential principle. He asked what he thought was a rhetorical question—what good it was to a man on disability allowance to talk about tax cuts. It does not seem to occur to the hon. Member for Gordon, any more than to his party, that the money that pays for disability allowances is generated by a successful economy driven by effective rewards and incentives.

Mr. John Battle: Surely the Financial Secretary will concede that, if the wages at the top of the scale rise by substantially more than inflation, that will pull up the average. Will the hon. Gentleman remind me what the average male weekly wage now is? I suspect that many of my constituents receive nothing like that amount.

Mr. Dorrell: Average male earnings are now just under £400 a week. That in itself reflects the increase in earnings brought about by the more successful economic policies introduced in the 1980s. Failure to understand the critical importance of the incentives that lie at the heart of a free economy explains the choice with which the electorate were presented on 9 April.

Mr. A. J. Beith: Would it not be a more accurate analysis to say that, in the general election, the majority voted for parties that believed that, in the current economic circumstances, there was some scope for greater investment rather than tax cuts? Would not even more have done so if they had not taken fright at the last moment, seeing the possibility that Labour's ambitions for tax increases were far greater?

Mr. Dorrell: No, I think that what frightened them was the prospect of Labour and the hon. Gentleman's party entering into a cosy pact that would deliver proportional representation.
What the electorate saw on offer from Labour during the general election campaign was a programme that would add £7 billion to the tax burden, and would bring back 59 per cent. marginal tax rates for wealth creators. For the Liberal Democrats—the party of the hon. Member for Berwick-upon-Tweed (Mr. Beith)—even that was not enough; according to them, an across-the-board tax

increase was needed to pay for the party's social programmes. The electorate saw the choice with which they were faced, understood its implications clearly and chose the Government's vision. I believe that they were absolutely right to do so.

Mr. Clive Betts: The Financial Secretary has referred to incentives. He has also mentioned 59 per cent. tax rates, which—obviously—he rejects. Does he accept, however, that many people at the bottom of the scale—those on housing and poll tax benefits—may face effective tax rates of up to 98 per cent. if they have a chance to go out and earn money? Benefits are withdrawn, and tax comes in. The Government's council tax proposals increase the disincentives and the effective tax rates for such people.

Mr. Dorrell: I was about to observe that one of the changes introduced by the Government in earlier years ensured that no one had to pay marginal tax, combined with benefit withdrawal, of more than 100 per cent. That system operated before the Government started to reform the taxation of income.
In particular, on 9 April, the electorate chose the Budget delivered by my right hon. Friend the Chancellor of the Exchequer on 10 March rather than the shadow Budget delivered with such ceremony by the leader-inwaiting of the Labour party. Our Budget continued the process of reform and reduction of taxes that has been the hallmark of 13 years of Conservative government. My right hon. Friend cut income tax to 20p on the first £2,000 of everyone's taxable income, and 20p is now the marginal rate for nearly 4 million people. In doing so, he reaffirmed his pledge to move towards a 20p basic rate for all taxpayers as soon it was prudent to do so.
My right hon. Friend's Budget was not a quick election gimmick; it built on earlier reforms, one of which the hon. Member for Sheffield, Attercliffe (Mr. Betts) has just drawn to our attention. The Social Security Act 1986 ended the anomaly of marginal withdrawal rates of over 100 per cent., and the national insurance reform of 1989 ended the notorious national insurance "steps". The Budget follows the reduction in the basic rate of income tax from 33 per cent. to 25 per cent. in a number of steps, every one of which was opposed by the Opposition—although they asked the electorate to believe on 9 April that, having voted against it, they now considered that 20 per cent. was the right income tax rate.
The Budget also follows measures that we have taken at the higher end of the income scale to improve incentives. We have reduced the top rate of income tax from 83 per cent. to 40 per cent.; we have abolished the investment income surcharge of 15 per cent.; and we have reduced the top rate of inheritance tax from 75 per cent. to 40 per cent. Those changes are all of a piece, and they represent the Government's continuing commitment to reducing the tax burden, sharpening incentives and, above all, rewarding success.
Tax cuts, however, cannot be had for nothing. Only a Government who are committed to controlling public expenditure will have the capacity to cut tax. The history of the 1960s and 1970s is one of unrelenting growth in the proportion of gross domestic product represented by public expenditure. In 1964, the outgoing Conservative Government bequeathed a public expenditure share of


GDP of 36·75 per cent. By the mid-1970s, that share had risen to only a fraction under 50 per cent.: half the total national income was being spent by the Government.
It was at that point that Dr. Witteveen—my hon. Friends will remember him—arrived to bail out a bankrupt Government. Under his tutelage, Labour imposed the only real-terms cut in NHS expenditure in recent history—yet, despite the U-turn imposed by its bankers, public expenditure still stood at 44 per cent. of GDP when Labour left office in 1979.
The present Government have brought firmly under control the share of national income accounted for by public expenditure. At the top of the economic cycle, the share was some 4 per cent. lower than it had been at the peak of the previous cycle: in the current recession, the share is likely to peak at 43 per cent., compared with a peak of 47 per cent. in the early 1980s and—as I have said —one of a fraction under 50 per cent. in the mid-1970s.
I have stressed the emphasis that we place on controlling the tax burden. Disciplined control of public expenditure is the inevitable and inescapable corollary of that commitment. One change announced by my right hon. Friend the Chancellor in his Budget will serve further to underline the critical importance of the umbilical cord that should connect tax and expenditure decisions. Next year will be the last year in which a Finance Bill debate is held in the summer: in December 1993, we shall switch to an annual Budget statement that will cover both revenue and expenditure.
That change will improve decision-making in government. It will mean that decisions on spending and decisions on tax can be made alongside each other, that all the Government's activities can be viewed in the round and that it can be decided properly whether a given objective would be better met by means of the public-expenditure or the tax route.

Mr. Robert Sheldon: Obviously, we all welcome what the Financial Secretary has just said. Will he tell us, however, just how definite the figures produced in December will be in terms of the actual Budget? Will what is announced then be just a plan, or will a decision be made at that time?

Mr. Dorrell: My right hon. Friend made the position clear in his Budget statement. The December Budget, as its name implies, is intended to bring together expenditure and revenue in a firm Budget statement.
The change will also improve accountability. The presentation of the Government's plans will be easier to understand. Parliament and the public will be able to look at both sides of the account, to see what the Government plan to spend and how they propose to pay for their spending. Parliament and the public will be able to debate the choices that the Government have made. The new system will make crystal clear what the voters recognised on 9 April: that only a Government with the will and desire to control public expenditure can genuinely offer the prospect of lower taxation.
There are other benefits too, not least for employers. They are responsible for operating the PAYE system, and it falls to them to ensure that Budget changes in income tax rates and allowances are passed on to their employees. The current Budget timetable means that the Inland Revenue must update employees' tax codes for the new tax year in two stages, in order to put the benefit of tax reductions into

pay packets as soon as possible after the start of the tax year. That often means that an employee's tax code is changed twice in a year, causing extra work for the employer and, in an annual cycle, correspondence for Members of Parliament.
With a December Budget, the Revenue's two annual coding exercises will be combined. The recoding will take place in one exercise before the tax year starts. Inevitably, there will be some transitional costs for employers in switching to the new system, but when it is in place it will mean less work for them and for the Inland Revenue. For taxpayers, it will mean that tax cuts will normally be in pay packets immediately after the start of the tax year instead of late in May, as at present.
The Bill picks up those measures that did not need to be on the statute book before the election. With two exceptions, they will take effect from the dates announced in the Budget. The exceptions are the measures to reduce the minimum limit for charitable donations qualifying for tax relief under the gift aid scheme and the relaxation of the rules for some charitable convenants. As my right hon. Friend the Paymaster General announced to the House on 7 May, we now propose to bring forward the starting date for these measures from 1 July to 7 May. That will be of considerable benefit to both charities and donors.
On 6 April, the threshold for inheritance tax was raised from £140,000 to £147,000, in line with indexation. The Bill implements the over-indexation to £150,000 announced in the Budget. That starts the process that we promised in our manifesto of lessening the burden of inheritance tax on families whose principal asset is the family home. But the Budget contained a measure of wider significance, a measure that has been widely welcomed.
Those who build up their own firm are often fearful of the threat that inheritance tax poses to the long-term future of their business. They are concerned that their heirs will face a large inheritance tax bill and that, to pay the bill, those heirs will have to take funds out of the business that could be better used to make the business grow. Worse still, they may have to sell up, as a result of which the business would no longer be a family business.
We do not believe in a one-generation enterprise society. We believe that people are right to want to pass on the results of their efforts to the next generation. If Parliament approves the Bill, the threat of inheritance tax to family firms will be removed.
The inheritance tax change was one element of a wider series of measures designed to benefit business. The changes to value added tax penalties were enacted in the Act that the House passed just before the election. The changes to the business rate in England and Wales will be implemented through the Bill that the House is to debate later today. Adjusted rates bills will be issued for 650,000 English and Welsh properties later this summer, whereas 250,000 properties in Scotland and Northern Ireland, where no legislation was needed, have already received their bills. We are introducing rules for hearing tax appeals, which include powers to award costs and publish decisions.
The amount that we can or should do through the tax system to help businesses is, however, necessarily limited. What matters most to all businesses is the overall economic condition of the country and the availability of opportunities for trading at a profit. The 1990s promise to be a decade of increasing opportunity for business. It will certainly be our purpose to ensure that that is so.
The 1990s will be the first decade of the European single market. It is perhaps fitting that a substantial part of the Bill is taken up with the measures needed to administer the tax system once fiscal controls at frontiers are abolished on 1 January 1993.

Mr. David Winnick: The Minister keeps on talking about opportunities, tax gains and the rest of it. Will he take this opportunity to refer to a subject that was not referred to in the Queen's Speech: unemployment? What opportunities will there be for unemployed people? The unemployment figures increase month by month. Many people fear that they will never work again. When will unemployment be at anywhere near the same level as it was when the hon. Member for Orpington (Mr. Horam), then a junior Labour Minister, was in office?

Mr. Dorrell: Has it not occurred to the hon. Gentleman that the building of a successful and expanding economy is the necessary precondition for the delivery of a reduction in unemployment? The hon. Gentleman ought to concentrate for one second on the success we achieved in job creation and reducing unemployment throughout the 1980s. In that decade, more than half of all the jobs created in Europe were created in this country. The abolition of unnecessary frontier controls represents a major advance towards the Government's objective of a free and competitive market of 350 million consumers in Europe. That in itself provides an opportunity to create the jobs that the hon. Gentleman very properly wants to see created but for whose creation he makes no proposals.
The scale of the internal market in Europe should not be underestimated. It is worth reflecting that the European Community will be further advanced in the removal of internal barriers to trade than some federations. For example, the Canadian Prime Minister, a mere 125 years after the foundation of the Canadian federation, has set himself the objective of reducing the current interprovincial barriers to trade so as to create an internal market in Canada that will parallel the market that we are seeking to build in Europe. The completion of the internal market in Europe represents a substantial achievement for the Community, as well as a major trading opportunity for British business.
In contemplating the opportunities presented by the single market, we should also reflect on how far we have come since we joined the European Community roughly 20 years ago. In those days, there was a fear that opening up the European market could spell economic destruction for a weak and fragile economy. Who, after all, we were asked, would want to invest in an economy that was inflation-prone, strike-bound, with a name for poor productivity and poor quality, where enterprise and initiative were throttled by a penal tax system?
In the 1970s, the British economy looked destined to falter. The prospect of freer markets was a threat, not an opportunity—a threat to those who feared that it would spell the end to a cocooned and mollycoddled existence. The fact that Britain is now the investment location of choice for those who want to take full advantage of the single market is one of the most concrete testimonies to the

achievements of the last 13 years. The United Kingdom has recently been attracting half of all American investment—

Ms. Diane Abbott: The Minister has talked about the opportunities presented to the British economy by the European single market, but is it not the case that the Government's unrelenting opposition to the social chapter means that the opportunity offered to the British economy is for it to become the sweatshop of Europe?

Mr. Dorrell: No. It is the opportunity described by Mr. Delors—of becoming the most attractive investment opportunity for business in Europe. That is the choice that business is making.
As I was saying, half of all American investment coming into the Community and just under half of all Japanese investment in the Community now comes to Britain. Britain offers a low tax environment, with corporation tax in the current year at 33 per cent. and with a top rate of income tax at 40 per cent. This country offers good labour relations and stability.
On 9 April, the British people were offered a choice. They chose the policies of low taxation that give individuals freedom to chose how they spend their own money, that give businessess an environment in which they can grow and invest. They rejected the prospect of a wealth-destroying, high-tax economy and of an environment hostile to enterprise, investment and growth. They realised, as we realise, that that offers no future to Britain. I commend the Bill to the House.

Mr. Nicholas Brown: I must confess that I never recognised either myself or my party during the speech to which the Financial Secretary treated the House. However, I agree with him that what matters to business is the overall economic condition of the country.
The House will want to consider the Bill in the context of the present state of the British economy, in particular in the context of the budgetary stance that these measures are supposed to underpin. For example, there is nothing in the Bill that will have a significant impact on Britain's trade deficit, yet the position is both serious and deteriorating. April's deficit was an alarming £1·061 billion. In the last three months, the volume of imports has risen by 6 per cent., but the volume of exports has risen by only 2 per cent. The manufacturing deficit for the last three months is nearly twice what it was in the same period in the previous year. Before 1983, Britain never had a manufacturing deficit. Since then, we have never had a surplus.
I know that there are some in the Conservative party who argue that those things do not matter, that they are all private sector arrangements that can be left to find their own level. That view is not universally held within the Conservative party. Let me treat the House to an extract from a speech made to the Conservative party conference in 1989, not by the man who is now our Prime Minister, but by the man who is now our President. He said:
I beg our party not to argue that a deficit in overseas trade is of incidental importance, self-correcting, easily financed. I don't believe a word of it.
I bet he delivered this speech better than me. He went on:


We would never have let the Labour Party get away with such an argument.
He certainly delivered that better than me.
Tell the small shopkeeper that he can trade at a loss and he'll recognise the sound of socialist naivety. Ask any housewife how long she can feed the family on tick.
There was a time when it was unnecessary to say to Conservative party audiences, even rhetorically, that they should "ask any housewife", because they would have been all too acutely aware of the views of one specific housewife.
Britain's second most famous housewife made clear her views on trade deficits:
Imports have penetrated our home market deeper than we could ever have imagined … the Conservatives are on your side. We are going to let you who know the job get on with it … so that once again the products stream from our factories and workshops while customers of the world scramble over each other to buy them.
That was in April 1979. Far from having customers from all over the world scrambling to buy the products streaming from our factories and workshops, we have maintained a constant manufacturing deficit since 1983. Britain is now the only EC country where manufacturing investment is lower than in 1979.
Those issues would be important at any time, but to have such a weak balance of payments position at this stage of the economic cycle suggests that something is deeply and fundamentally wrong with the management of the British economy. The disgraceful truth is that there is nothing in the Bill to have any impact on the problem.
What of inflation? In 1987, in the Conservative party manifesto, which was supposed to set the tone for the last Parliament, the Conservatives attacked inflation in the only way they know how—by using extravagant language:
Inflation is an evil … as with all cancers, it needs to be completely eradicated. To this end, we shall endeavour to achieve zero inflation.
To put that hysteria into context, the manifesto goes on:
 "We shall maintain strict control of public expenditure and borrowing"—
oh, yes.
The Conservatives' method of bearing down on inflation when they periodically feel obliged to do so, is to create a recession and put others out of work. Inflation was running at 10·9 per cent. in September 1990. Our country, under the management of the Conservative party, has sustained seven successive quarters of negative economic growth and 25 consecutive months of rising unemployment. At the end of all that pain and misery, the underlying rate of inflation—that is the Conservative party's preferred measurement—is still 5·7 per cent.
The Budget and the Finance Bill are predicated on optimistic Government forecasts of economic growth. No one else seems to share the Government's optimism. In a devastating survey of informed opinion, the Financial Times told us last Thursday that
Economists predict growth will remain weak.
It goes on:
Economic growth in the UK will continue to crawl along at a weak level for the rest of this year and next, according to the latest Financial Times survey of forecasts on the UK economy … Economists expect gross domestic product to grow 0·8 per cent. this year. Even next year, GDP growth will not quite recover to the so-called 'trend' rate of about 2·5 per cent … The consensus from economists at 22 universities, intergovernmental institutions, independent think-tanks and City investment houses is that unemployment will continue to grow over the next two years, rising to 2·75 million by the end of this year and to just under 3 million by the end of next … Projections for output this year are particularly gloomy …

Investment is forecast to fall substantially this year … Forecasters do not expect inflation to wither greatly from present levels … The United Kingdom's trade deficit remains a big concern. Nearly all the economists surveyed predict a worse current account balance this year than the £6·5 billion deficit projected by the Treasury in the March budget—the consensus is for a deficit of £8·4 billion—but their forecasts might be too benign … The average forecasts do not suggest that Britain will be able to cut its interest rates below German rates.
That is a devastating indictment of the Government's management of the economy. It leaves us with sluggish economic growth, grotesquely optimistic medium-term Government economic forecasts, a weakened tax base and a public sector borrowing requirement that has more to do with political expediency than prudent economic management.
The Government have set out their objectives as reducing the share of national income taken by the public sector, balancing the budget over the medium term and reducing taxes when it is prudent to do so. In the present circumstances, any significant tax reduction seems unobtainable, even in the medium term. Even the objective of a balanced budget over the cycle is receding as the Government's growth forecasts look ever more ridiculous.
It seems logical to conclude that, with considerations of electoral expediency out of the way, the Government's Treasury team will be looking at two main and not mutually exclusive options. First, this year's public spending round will be draconian, and what has already been promised is probably even now being clawed back. Secondly—it is here that Finance Bill Committee members will need to be particularly vigilant—the Government will be looking for ways of getting the total tax take from the British economy back up to around 38 per cent.
I am prepared to give way to the Financial Secretary if he wishes to repudiate that. The Government will want to use indirect taxation as the mechanism. The Financial Secretary almost confirmed as much during our last debate on these matters. The option of broadening the scope of value added tax and blaming the European Community sounds par for the course, given the Government's recidivist record on tax matters. The Committee will need to be alert to that.
The state of public finances underpinning the Finance Bill is worse than it appears, since the Government have had the accumulated advantage of £109 billion of North sea oil revenues, £40 billion of privatisation receipts and a further £25 billion from the sale of council houses.
Moving from one sorry state of affairs to the next, there is nothing in the Finance Bill to underpin the classless society to which the Prime Minister said that he is committed. When asked on "Election Call" about the widening income gap between the rich and poor, the Chancellor simply said,
I don't believe it has.
Yet, in its family expenditure survey, a survey of real families, the Institute for Fiscal Studies found that the poorest 10 per cent. of the population lost £52 a year on average as a result of Conservative tax and benefit policies from 1979 to 1992. One of the explanations it gives for that is that
VAT increases have hit the poor, who have not been compensated by cuts in direct taxes because they do not pay them.
Over the same period, the richest 10 per cent. of the population gained £4,524 a year on average, yet the


Chancellor said that he does not believe that the income gap has widened, as if these were matters of faith rather than statistical fact.
One of the ways in which the unfairness of the tax burden could be addressed is through the mechanism of inheritance tax. In its latest survey of Britain's 300 wealthiest people, The Sunday Times said that 155 of the 300 surveyed inherited what it called "serious money". We are told that most of Britain's dukes and earls somehow manage to hang on to their wealth through boom and bust. How can it be fair or just for one young man of 28 to be worth £67 million because of the success of an ancestor eight generations ago in the 18th century?
I believe that it is right that a successful person who has built up money for himself should be able to hand that on to his children and to his children's children, but should it be untouched by the tax system for eight generations? When does the tax system take its cut?

Mr. Dorrell: How many generations?

Mr. Brown: For how many generations does the Financial Secretary think it right for these great fortunes to go from father to son, or perhaps occasionally to daughter, without the tax system taking its cut? Does he think that that is right or morally justifiable?

Mr. Dorrell: I thought that I had made it clear that it is more important for society to encourage successful businesses and to give them the wherewithal to continue to invest in expansion and in the job creation process that the hon. Member for Walsall, North (Mr. Winnick) was worried about.

Mr. Brown: I am not quarrelling with the Financial Secretary about setting the parameters for successful businesses: I am talking about the tax take from inherited wealth, which is different. The young gentleman I am referring to is not a successful business man, and nor, no doubt, was his father. They were the beneficiaries of a substantial sum of money that they inherited from an ancestor who was successful in the economic conditions of the 18th century.

Mr. John Townend: If the hon. Gentleman supports the Government's changes to estate duty or inheritance tax on businesses, why did the Labour Government have a rate of 70 per cent.? Does he now accept that that was a mistake?

Mr. Brown: We are discussing two different things. I have not stated a view on the Bill's clauses, which we shall trawl in detail in Committee. I am talking about the principle of inheritance tax as a mechanism whereby the taxpayer can take a bite from the great accumulated fortunes that seem to be able to drift almost in perpetuity from generation to generation of this country's wealthiest families.
The position is made all the more stark by the fact that the poorest 10 per cent. of households have an annual income of £4,081, of which they must pay 45 per cent. in different taxes. Income tax accounts for only £40—not because they are rich, are professionally advised or are related to the royal family and do not pay tax but because they are too poor to fall into the income tax system. All, almost all, of that 45 per cent. is spent on indirect taxes.
How can we place an effective tax burden of 45 per cent. on the poorest, whereas the wealthiest seem to be able to keep great fortunes rolling through the generations without paying tax, let alone a tax take of 45 per cent.? It cannot be morally right that the tax system should deal so harshly with the very poorest yet so generously with the very rich. A Government who believed in a classless society would favour redistributing the burden. Needless to say, that is not the thrust of the Bill's inheritance tax proposals.
The victims of the Government's recession are the unemployed, who are not spread evenly throughout Britain. The Government justify their neglect of the disadvantaged by claiming the growth in the level of take-home earnings as a big achievement—the Tory party's "big idea". That argument was trawled in our debate on 14 May, and the Financial Secretary returned to it today. As it is one of the issues that divides the two main parties, we shall return to it again.
In the debate on 14 May, the Financial Secretary emphasised the importance that the Government attached to what he called
an effective system of rewards for those who take risks and commit themselves to extra effort".—[O? cial Report, 14 May 1992; Vol. 207, c. 810.]
That was the tenor of his remarks this afternoon. He cited figures showing the growth in real take-home pay for the person on average earnings. If it is the Conservative's big idea that the take-home pay of those on average earnings grows rapidly under Conservative Governments, the Financial Secretary will be disappointed to learn that his big idea has stalled.
In 1991, there was a 0·5 per cent. fall in real disposable incomes, due largely to the recession. No doubt the Financial Secretary will have his plans for the Government's big idea, but they will not fit happily with the other parameters for the management of the economy, in particular the Government's difficulties with the tax take. The victims of the recession are not the employed but the unemployed. It is not employed people who are carrying the burden of the famous price worth paying.
With unemployment standing at 2,695,000—9·5 per cent. of the work force—with 23 unemployed people chasing every vacancy, with 1·5 million more of our fellow citizens unemployed now than when Labour left office, and with the number of people unemployed for more than a year standing at 841,000—a shameful increase of 94,000 in the first quarter of this year—the truth is that the Government not only do not care but, on the evidence of the Bill, no longer feel obliged to pretend to care.
The Conservative party, its owners and its newspapers will tell any story to save jobs—not the jobs of their fellow citizens and not the employment base of the country that they are supposed to be governing, but the only jobs that Conservative politicians care about: their own and those of their friends.

Mr. John Biffen: The debate was initiated with a spirited speech from my hon. Friend the Financial Secretary, who argued the virtues of reducing income tax in such robust terms that it reminded me of Gladstone's dictum about eschewing taxation and, rather, allowing money to fructify in the pockets of the people. My hon. Friend gave a formidable performance and has


moved some way from the Tory Reform Group. That shows what a short time in the Treasury does, even to a good man.
I give my warmest support to the Bill, which seeks to raise the minimum revenue that is needed for the conduct of our affairs over the next 12 months. Treasury Ministers are engaged in an exercise that is bound to cause increasing difficulty as they try to reconcile their fiscal, public spending and monetary objectives. I shall try to explain why—but briefly.
I accept that the Bill raises the minimum revenue that is required, but it sits alongside substantial public spending. I see my right hon. Friend the Chief Secretary in his place, and I wish him well in the formidable task, which is well within his capabilities, of disciplining all the spending Departments in the coming weeks; but I do not believe that the level of public spending more than incidentally reflects the swing of the recession.
Of course the swing of the recession is an element in that public spending, but underlying the present levels of public spending is the continuous thrust for more money on health, on social services and education. I do not believe that those imperatives will be reversed merely because there has been a general election. We must reconcile ourselves to high public spending for the immediate future. Even if there is recovery in the economy, I suspect that unemployment will be the last element to show a fall. Therefore, when we are talking about its fiscal consequences, I still believe that the economy can recover while public spending is high.
However, many hon. Members will reflect from anecdotal experiences in their constituencies that the revival in the economy is, in most generous terms, tentative. More fledgling swallows have flown in to proclaim the recovery since the general election but have now reversed direction and gone to Italy. I do not regard that as a condemnation of Government policy. I do not feel any enthusiasm about a speedy and accelerating rate of recovery. There is much to be said for the recovery being well based and progressive in that sense.
All the anecdotal evidence I have been given is of an economy still in a state of uncertainty and unease. In those circumstances, I should have expected just a bit of imagination and some attempt to deal with interest rates. It is perfectly true that, since the historic occasion when we entered the Lubyanka of the exchange rate mechanism, interest rates have fallen, but the rates of inflation have fallen faster. In real terms, interest rates today are at an extraordinary level, especially when one traces our general state of economic activity.
I am not going to make forecasts, as the hon. Member for Newcastle upon Tyne, East (Mr. Brown) did so persuasively with the aid of The Sunday Times—Murdoch and the Labour party, a dream ticket. However, I do not believe that we can sensibly have a balanced, interrelated economic policy without a reduction in interest rates.
At the weekend, commentators were saying that the exchange rate mechanism was the nearest we had to the gold standard of the inter-war years, and that my right hon. Friend the Chancellor of the Exchequer was almost like Montagu Norman in lederhosen. The immediate prospect does not appeal. It is perfectly possible to reduce interest rates without causing disaster within membership of the exchange rate mechanism, although I grant at once that there is more than one opinion about such a relationship.
It is just possible that, as a result of a movement of interest rates, the present exchange rate could not be maintained. Would it be a national disaster if there was some adjustment in the present exchange rate? I do not know what the correct rate is. I am a market person by instinct and by prejudice, and I prefer a free exchange rate to a politically fixed one. Do my hon. Friends agree with my right hon. Friend the President of the Board of Trade that when, month after month and quarter after quarter, there is a deficit of the recent recorded magnitude on the current trade account, it tells us that all is well with the world? Or does it tell us that the exchange rate and all that it represents is possibly being balanced round a slightly suspect figure? I do not know. I do know that one cannot carry out a policy with the three major economic components in their present relationship.
I have an affection for the Treasury, although I know that it is full of the most lofty and intellectually well equipped individuals, who never stray too far into the real world. I have a little friendly advice. My right hon. Friends the Chancellor and the Chief Secretary or my hon. Friend the Financial Secretary should take those individuals to one side over a fraternal lunch. They should explain to them the old seaside business of the three-card trick, because they have probably never played anything with cards except bridge.
It would be helpful to explain the three-card trick to show that, if one is conducting economic policy, one cannot have a fiscal policy, a spending policy and a borrowing policy, with all that relates to a monetary policy, unless there is a pos flexible interrelationships. Once one freezes one of them, there are deleterious consequences across the board. That is the position I see emerging. I say to my hon. Friends that, if one has such a difficulty, one addresses it in year one of a Parliament—because the longer one goes on, the more difficult it becomes.

Mr. Robert Sheldon: As always, it is a pleasure to follow the right hon. Member for Shropshire, North (Mr. Biffen). It was he who correctly predicted a number of years ago, when the Government's economic policy was first revealed to us, that we faced three years of unparalleled austerity. Those three years were somewhat similar to the present. I had hoped that other Conservative Members would have pointed out what was fairly obvious to us all.
The levels of interest rates and the determination to keep inflation down, which the right hon. Member for Shropshire, North correctly mentioned, overhang the Bill. The Chancellor of the Exchequer has said that the central economic aim is to get inflation down and to keep it down. Yet the Government said that 13 years ago, and we suffered for three years to bring that about. We now hear the same hopes and aspirations which were produced so long ago.
The Chancellor of the Exchequer now talks about 2 per cent. inflation, and there is even the odd mention of zero inflation in the years to come. Who in the present Government will be straightforward, as the right hon. Member for Shropshire, North was, and point out the consequences of those unrealistic aims? We face the problem of real interest rates being ridiculously high and damaging our industry. We face levels of inflation which


will damage industry as well, and we face a balance of payments deficit with its consequent problems if we do nothing about our exchange rate.
The true level of inflation is 5·7 per cent, the underlying rate, yet we must get that down to 2 per cent. We shall not be able to compete with the Germans indefinitely, because we need to achieve levels of inflation lower than those in Germany to make our exchange rate realistic. It has taken the French a number of years to achieve that, yet people still do not have the confidence in the French franc which they have in the deutschmark, so one must maintain the unrealistic policy for even longer than the French have.
In 1979, the Government were confident that they had the right solution. They believed that sterling M3 would produce the recovery and they reduced public expenditure a great deal. Once again, the right hon. Member for Shropshire, North was quite right. Public expenditure will not be reduced as heavily now because they are more or less at the minimum. We should consider the level of public provision in this country, the way in which we are still living off our capital and the fact that our standard of roads and of housing is still declining.
Some 13 years ago, I lost 30 per cent. of the firms in my constituency which went to the wall as a result of the Government's severe actions. We are losing many firms today although it is too early to know exactly how many we shall lose. Is the goal of reducing inflation to 2 per cent. realistic? To achieve that, we shall need a further level of deflation, with unemployment rising indefinitely into the future, with investment falling and with increasing misery as the Government pursue the one goal in which they believe.
We all know that it is easy to reduce inflation, and to deflate the economy by high interest rates and, for good measure, by high exchange rates. That reduces consumption and destroys companies, the good as well as the bad, indiscriminately. Exports are hard to get with a high exchange rate and imports take advantage of the position to compete with our industries. Inflation then comes down. High interest rates restrict spending, although not all forms of spending. Individuals with high levels of saving profit from such a situation.
The question that must worry us is what happens eventually when there is an upturn. What happens then to our balance of payments? We expect a £9 billion deficit, at an annual rate, for the first half of next year. That may continue throughout next year, with high unemployment and with a bad level of investment, and possibly throughout the year after.
Where are the exports coming from? The manufacturers have been badly damaged by the Government who give them little consideration and less assistance. The problem is compounded. Many on the Treasury Bench said a couple of years ago that the boom was investment-led; it was not—it was a consumption-led boom. The boom was in finance, credit and consumption, and that did not help our long-term trading performance. The trouble with relying on interest rates is that some people gain and some people lose.
It is harder to control the economy through interest rates alone now that so many people have such a large amount of collateral in their homes. A further problem is that the Government created the conditions in which the

home was seen as an investment. Trading up to bigger and better homes was considered to be the best investment of all. However, housing is not an investment. It is a consumption and it is a necessary consumption with regard to modest homes, although it is an extravagant consumption in certain other cases.
It is quite reasonable, sensible and right to help people to achieve modest levels of housing. We should provide incentives for that. However, to subsidise through mortgage tax relief, the abolition of schedule A, capital gains tax and capital transfer tax and to spend £8 billion on that, is profligacy of a massive order.
Although there is no question that all Governments are to blame, this Tory Government are the worst. After 13 years, the people of this country have learnt to penny-pinch in everything else, but to be spendthrifts in housing. We are now paying the penalty for having such a level of home ownership fuelled and ignited by the former Prime Minister's dedication to absurdly lavish incentives to home ownership. The country has paid a terrible price for reducing inflation by a means that caused great uneccessary damage to our economy.
We must look to the future. Many people saw the difference between providing advantages for the City of London and providing advantages to manufacturing industry. The trouble is that the Government did not see that important distinction. Of course we benefit from the City of London and its financial operations. However, we do not benefit from it anything like as much as we can benefit from manufacturing industry which produces exports.
So many people are only dimly beginning to perceive that financial centres follow wealth creation which comes mainly from manufacturing. London became a financial centre because of our industry in the last century. New York became a financial centre because of United States industry. Similarly, Tokyo is becoming a financial centre as a result of Japanese industry, and Frankfurt is becoming a financial centre because of West German industry.
While 10 or 20 years ago it was inconceivable that a European financial centre could be anywhere but in London, as time passes it becomes harder to be certain that such a financial centre will be located in our capital city. Our financial centre rose on the banks of Manchester cotton and Birmingham metal industries. However, it now relies on the expertise of people in financial institutions. That expertise is tradeable. It can be acquired and removed. Those people can travel abroad and establish similar institutions in other countries.
The lesson is that manufacturing industry is the principal begetter of financial institutions. Therefore, we shall have to return to manufacturing industry. There was an opportunity in the Finance Bill to make capital allowances helpful to manufacturing industry instead of the reverse—as is so often the case.
I repeat what I have said on several occasions. A manufacturing company might buy a machine tool for £1,000. However, at the end of one year, that is written down to only £750. The £250 difference may very often be the salesman's commission. The machine tool could not be sold for £750. That is not depreciation. In effect, there is a tax on that machine tool because the true depreciation suffered by the purchaser will not be allowed back to him. That must be nonsense. Sooner or later I hope that the


Inland Revenue and the Government will see sense and restore capital allowances to something more approaching their true value.

Mr. John Townend: The hon. Member for Newcastle upon Tyne, East (Mr. Brown) was correct when he said that this autumn's public spending round was going to be tough. My right hon. Friend the Chief Secretary to the Treasury should be aware that there will be much support on the Back Benches for curbing high spending Ministries. It is vital this year that public sector pay should set an example and is not settled at rates higher than in the private sector.
It is significant that the first Finance Bill of this Parliament continues the radical reform of our tax system started by Mrs. Thatcher's Government and which was aimed at creating an enterprise culture in Britain. In that respect, clause 59 is the most important clause in the Bill.
In the 1970s, this country had one of the smallest small business sectors in Europe. The reason for that was obvious. During the 1970s, socialist Governments did not like private enterprise. Clause 4, massive nationalisation, enormous burdens of bureaucracy and high taxation were heaped on small businesses. Profit was a dirty word. Any business that survived, prospered and expanded faced the prospect that once it grew beyond a certain size, it was unlikely to be passed on to the younger generation because of the burden of estate duties. The nonsense was that the more successful the business the more it was likely to be sold to pay those penal taxes.
Quite naturally, owners tried to avoid that tax by giving away their shares to the next generation while they were still alive. The Labour party decided to stop that. Labour did away with estate duty and introduced capital transfer tax. That was economic madness for our country. We 'were killing off our industrial and commercial seedcorn. Some of yesterday's smaller firms are today's medium-sized firms and some of today's medium-sized firms will be tomorrow's industrial giants. The new tax also had a devastating effect on our regions.
Estate duty and capital transfer tax saw the end of many of our great northern firms which were controlled by northern families. When they sold out, they inevitably sold to national or international companies. The head offices were moved from the provincial city to London, and with them often went the finance, sales and research and development departments. That left the provincial cities more and more as branch factory land.
There are numerous examples of that in Hull in my constituency. Our leading departmental store, which was run by the Powell family for years, had to be sold to pay estate duties. Who benefited from that? The town did not benefit, because the profits were spent and invested in Hull when that department store was a private company. The customers did not benefit because they no longer received the service or choice that they received before. They had to have what head office in London said that the store should sell. The employees did not benefit. If there was a problem, they could no longer walk through the door of the boss's office to discuss it. They now worked for a faceless management in London.
The result of that policy had a broader effect on provincial society which I am sure the socialist ideologues who imposed the policy did not foresee. The family owners

and directors nearly always provided the leadership in the community. They headed local charities and supported and financed sports clubs. They served as councillors and justices of the peace. As the family firms disappeared, the owners and directors disappeared as well. Even if the burden of capital transfer tax was not sufficient to force those businesses to sell out, it reduced the amount of cash available for investment and expansion.
In 1979, the Conservative Government realised that, if our economic decline was to be reversed, we needed to recreate the enterprise culture. We cannot create big firms. They are like oaks. One has to start with an acorn, and the acorns were the small businesses.
The great achievement of the Thatcher years was the enormous expansion in the establishment of small businesses and self-employment, helped by a much more supportive tax regime and lots of Government encouragement. Acorns grow into saplings before they become oaks. We defeat the object if half the saplings are cut down before they can grow into mature trees, and CTT was cutting them down.
The Government replaced CTT with inheritance tax. That was important because, once more, business men could give away their assets before they died, but that was not the solution. None of us knows when we will die. People die out of turn. It is dangerous to give away shares to the next generation—[Interruption.] Yes, we give them away, and people die out of turn and we get clobbered with tax. It is dangerous to give shares to the younger generation too soon because one is never sure which member of a family will go into a business. If money and power are given to young people too soon, it can cause family and social problems.
I am delighted that the Government have seen the validity of the arguments that have been put forward by the small business associations for some time and that clause 59 will now allow family businesses to be handed over free of tax to the next generation. This is an historic moment for small businesses. It will ensure their survival and expansion. It will be good for Britain, and it will be especially good for our regions and industry.
We hear much criticism of British industry having a short-term outlook. People say that industry is too worried about keeping the City happy and is reluctant to invest in the long term. Private family businesses do not have that problem. They can take a long view. They do not have to worry about the share price today or the price-earnings ratio tomorrow. They invest for the long term. The clause will be successful and will ensure that, over the next 15 years, we will have another harvest of great firms such as Marks and Spencer, Rolls-Royce and Sainsbury, which all started as family businesses.
As a Member who represents a large rural area, I am delighted that family farms will also benefit from the clause. In recent years, agriculture has been under increasing pressure, and the last thing that a farmer needs is the additional worry of how he will be able to hand over the family farm and ensure that his son can continue farming and pay his tax. If a farmer who has lost his father is struggling to survive, the last thing he wants is to have to sell vital fields to pay taxes.
My right hon. Friend the Chancellor has faced significant criticism over the past two years. I am sure that, as a result of clause 59, history will look kindly upon him. Without doubt, family farms and family firms will be ever


grateful. I support the Bill with more enthusiasm than I have supported any Finance Bill since I have been in the House.

Mr. A. J. Beith: The hon. Member for Bridlington (Mr. Townend) seemed to describe a small business and farming world quite different from the one that is out there at the moment. Clause 59 is undoubtedly welcomed by small business, and the related clauses are undoubtedly welcomed by farmers. However, far more of the small business men and farmers whom I meet these days are in no position to hand on substantial amounts of money: they have no great worries on that score. Their problem is to stay out of bankruptcy to keep their businesses afloat in what are proving to be very hostile economic times.
Many farmers are saying to their sons, "I am not sure whether you will be able to stay on the farm. I am not sure that there will be a living for you on the farm, even if I can hand it on to you." The hon. Gentleman should recognise that the world of small business is currently facing a number of more pressing problems than the one to which he referred, which undoubtedly affected business over many years in the way that he described.

Mr. Townend: We all accept that there are not large amounts of cash in small businesses, but surely the hon. Gentleman will accept that even a hard-pressed farm of 300 acres faces a serious inheritance tax problem which will be solved by the Government.

Mr. Beith: I agree. I supported the clauses and said, at the time of the Budget and since, that I would continue to do so. In the current climate, many farmers are saying to their sons, "You will have to think carefully before you even decide to keep the farm going, because I am not sure whether there is an income for the family now." But for the possession of a farmhouse and the ability to run a vehicle on the farm and so on, many farmers would be in a far better financial position if they gave up farming and went down the road to find a relatively poorly paid job, if one was available. It is as bad as that in many sectors of agriculture. It is not an argument against the new clauses: it is a point about the general climate.
The Financial Secretary was right to point out that the election featured the tax issue in a very significant way, but he drew rather strange conclusions from the figures. Perhaps because he was carried away by the fact that he is occupying an important position in the Government, he seemed to ignore the fact that, whereas 14 million people voted Conservative and therefore must be presumed to support the Budget, 11·5 million people voted Labour and 6 million voted Liberal Democrat. It is impossible to conclude from those figures that the majority of people weighed up the Budget and decided that what they wanted was the Budget presented by the Chancellor.
The Government won, by the rules of the system, enough seats to form a majority in the House and, under our system, that entitles them to be the Government. However, that does not suggest that the majority of people are convinced by the argument that, in the current circumstances, tax reduction is better than investment. Indeed, the figures suggest that the large majority of

people voted for parties which, in different degrees, saw grounds for greater taxation in the current circumstances. We argued, for example, that depending on income tax to address the urgent problems of education was desirable. We found wide support for that argument.
It is also true that, in the latter days of the election campaign, fear arose among many people about what the real implications of the Labour party in government would be and what the real extent of its tax ambitions would be. That undoubtedly influenced voters at the later stages. It did not alter the basic figures or the fact that the majority of people voted against the Government, but it is clearly something that the Labour party will need to address.
I remain convinced that there is a substantial body of opinion—the majority, as reflected by the figures—which did not accept the Government's argument that they could go on attempting to reduce taxation even at the expense of essential public investment. The right hon. Member for Shropshire, North (Mr. Biffen) hinted at that argument. There is a widespread feeling that there are key matters of investment with which we should get ahead now and which, if we do not get ahead with them, will hamper our economic growth.
If it makes sense, as the Secretary of State for the Environment said, to get into Canary Wharf while it is enormously good value, it must make sense to make some of the essential investments involving the construction industry while the construction industry can offer the most favourable terms while prices are at their lowest. Canary Wharf will remain pretty cheap for quite a long time to come. In the construction industry, prices may go up if we see some signs of recovery. At the moment, we think that it is extremely good value for that industry, and will put people back to work by doing some of the repairs, building and transport construction which is of real value for the future of our industry and economy.
It was part of our argument in the election that the Budget represented the wrong policy mix for accelerating the end of recession and was a missed opportunity to make some key public investments for which there is wide support. It was also part of our argument, and it is relevant to the Bill, that the Government's choice of tax-cutting measures was not going to address poverty in any significant way or put into people's hands sums of money that would make a significant difference to their purchasing power. One hundred pounds in the hands of an individual, as against £2 billion of public investment, seemed to be an odd choice to make at this stage of the economic cycle and unlikely to bring about serious improvement.
All the indicators have confirmed the impression, which was echoed on both sides of the House, of continuing recession problems—that is, our continuing output decline, unemployment continuing to rise, house prices and housing turnover continuing to fall, and gloomy reports from several companies. The chairman of Sainsbury said:
I do not see any concrete signs of recovery.
The chairman of Marks and Spencer said that he saw
no upturn in UK consumer spending.
Repossessions appear to be likely to continue, with the Government's scheme still not even off the ground, and the international environment is less favourable than ever to recovery because of the problems that we know exist in the German and Japanese economies. It would have made sense to move not to tax cuts but to investment.
This is a Bill of missed opportunities. For example, the Government have introduced no new provisions for tax relief on child care. Clearly, there is widespread public demand for such measures. Numerous Conservative Back-Bench Members keep talking about them. They did so in advance of the Budget, as if they were privy to secret information that the Budget would include great new provisions on child care. Year by year, those expectations are disappointed. We shall seek to raise the issue again in the context of this Finance Bill.
There is no sign in the Bill that the Government see the value of the tax system as something which can be used to support environmental objectives. Although the cut in car tax was welcome, the Government have missed the opportunity to use the tax system to promote environmental ends in relation to motor cars. The Bill does not vary car tax according to engine size or fuel efficiency. Nor does it do the same with other forms of vehicle taxation. Many other fiscal incentives could be used for environmental purposes. For example, corporation tax allowance could be made available for research and development into replacing CFCs. Changes in vehicle excise duty could also be used. There are several ways in which the system could be used for environmental purposes.
The Bill is also a missed opportunity to deal with poverty. There is no sign in the Bill of any move towards drawing together tax and benefits so that the low take-up of means-tested benefits ceases to contribute to poverty. The Government's tax changes are by no means the most efficient use of resources to help people on low incomes. If the Government are serious about targeting help on the poorest, they should drop the policy of concentrating spare resources on tax cuts via the expansion of the 20p band. Lifting the bottom of the tax band—lifting allowances—helps poorer people than those who are helped by lifting the top of the tax band. Simply expanding the 20p band will not be as effective as lifting the basic tax threshold.
The Government's particular choice of measures has brought with it considerable administrative costs. The cost of the extra staff required to administer the claims from people who had income taxed at source at the 25p rate but were liable to only the 20p rate will be considerable.
Before the election, I pressed the then Chief Secretary to the Treasury on the job implications. The Financial Times estimated that 800 new jobs would be required to administer the tax change. The then Chief Secretary said that he did not believe that the number of jobs required would be all that great. He gave a revised estimate later in the debate. He said:
I understand that the Inland Revenue anticipates a need for up to 300 additional staff in the first year and possibly more in subsequent years, depending on the take-up rate." —[O? cial Report, 13 March 1992; Vol. 205, c. 1134.]
In other words, "If people do not claim the tax rebate to which they are entitled, we might get away with not having to employ so many people." That is an odd way of dealing with the entitlements of the taxpayer. The change clearly involves considerable administrative costs, and I shall be interested to know whether the exact cost is now clearer.
Several measures could have been taken to reduce the bureaucratic burden on small businesses. For example, the continued separation of national insurance from income tax adds considerably to the administrative burden on small businesses. Small businesses have to contend with

not merely the pay-as-you-earn system but national insurance contributions. If the two were integrated into a single system, there would be a considerable saving in costs to small businesses, as well as a saving on the £1·2 billion that the Government spend on administering the present system.
In Committee, we shall have to address increasing anxiety about the way in which small businesses are treated by the Inland Revenue. The Sunday Times has highlighted some of the interviews that take place in which taxpayers—especially small business taxpayers—are not fully advised of their rights and interviewed about their tax obligations but find that ignorance of their rights is presumed upon. Tax inspectors, often pressured by their training and the promotion system to take a rigorous attitude, put a great deal of pressure on taxpayers and give the impression that taxpayers are presumed to be guilty, when in law they must be presumed to be innocent.
There is an increasing file of cases, many of which have been brought to my attention, in which interviews seem to have been conducted in a hostile and unpleasant manner. In Committee, we shall need to inquire what is happening on that front and whether, for example, more details could be made public about the advice and training given to inspectors who carry out the work. They seem to be put under increasing pressure to achieve results by questionable means.
A measure which might have been included in the Bill, and which I was surprised not to find, was included in the Conservative manifesto. It is the proposal to exclude home owners from paying tax on the rent of rooms in their home. It is a good scheme, which closely echoes something in our manifesto at the previous election. It is a piece of borrowing that I would encourage and welcome.
If people have surplus capacity in their home, it seems a good idea to encourage them to make it available. It would be particularly helpful to young people with housing problems to relieve them of a tax burden. Often it is not only the tax burden that causes the problem. The problem is that people have to become involved in the tax system simply because they rent one room in their house for perhaps a limited period of a few years when they do not need it for their own family. It is a good idea to relieve them of that problem, and I would like to know from the Government what progress they intend to make on it.
The Government could also say more about stamp duty. When the stamp duty relief was announced, we all predicted that it would expire at just the time when signs of recovery in the housing market were too few to make it sensible to impose an additional burden at that point. Sure enough, that seems to be what has happened.
If there is one particularly unwelcome measure in the Bill, it is the third piece of retrospective legislation in respect of certain building societies. The Leeds building society has already been subjected to retrospective legislation. The retrospective proposals in the Bill appear to be designed to frustrate a court action that has already been entered into the lists. They thereby contravene a principle set out by the Economic Secretary last year, when he said that it would have been wrong to try to change the law during a court case. He said that the Committee would have been rightly shocked if the Government had sought to change the law between appeals, and that that would not have been right. Yet here we are engaged on a third piece of retrospective legislation on building societies precisely to prevent a court case from settling the matter.


All Governments should be stopped in their tracks when they consider engaging on retrospective legislation, yet here we have it for a third time on this matter.
A further proposal for retrospective legislation is not in the Bill but the Government have announced that it will be introduced by an amendment. It involves life insurance companies. We shall examine it with particular care as the Government engage in their habitual recourse to retrospection in almost every Finance Bill.
I welcome some features of the Bill. Clause 59 increases the rates of relief against inheritance tax, as has already been mentioned. I also welcome the farmland exemptions. In the case of farmland, it is important to get the balance right so that we do not open a door which invites investment solely for the purpose of securing a tax exemption. That would damage agriculture. So far as those engaged in the industry have been able to assess, the clause seems to get the balance about right. It is a point that the Government must watch carefully.
The objective is obviously to help to keep farmland in families who have farmed it as a viable business proposition: it is not to open up a new door to people looking for a tax shelter who, in the process of doing so, inflate land prices to the general detriment of agriculture. We must be sure that that balance is carefully kept.
The provisions on the married couple's allowance are welcome. Again, they are provisions which we have sought for some time. In the past, the Government resisted them on the grounds of administrative cost. I also welcome what the Government have done on gift aid, which again follows an amendment that we moved last year. We wanted to go further, but at least the Government have made a move, and we welcome it.
The Bill is far from the most exciting Finance Bill that has come before the House. I hope that its Committee stage will not drag on too long. It will allow for the exploration of several points that I have mentioned this afternoon. There will be many other occasions on which the general failings of economic policy which have rather dominated today's debates can be explored.

Mr. John Horam: As you will be aware, Madam Deputy Speaker, this is not a maiden speech, but speaking for the first time as the Member for Orpington it would be remiss of me if I did not pay tribute to my predecessor, Mr. Ivor Stanbrook, who had been the Member for Orpington for 22 years. Those who remember Ivor will recall his trenchant views on many subjects, from the family to Northern Ireland, and his willingness to express them both inside and outside the House with strength and vigour. In that sense he was a true parliamentarian and was highly regarded as such. He was also highly regarded by the people of Orpington.
Historically, Orpington was a part of the county of Kent, but due to some ill-advised local government changes by a previous Conservative Government, for the past 25 years it has been part of the London borough of Bromley. For the most part, my constituents earn their living by commuting into central London and in particular to the City. Their first concern, therefore, is the health of the British economy, which is why I thought it appropriate to make my re-entry speech on the Finance Bill.
My constituents are equally concerned about British Rail's performance when they make their journey into central London, but that is a topic for another occasion.
The Government rightly gave high priority in the Queen's Speech to reducing inflation further, but they, and we, will not forget that this recession began in mid-1990, and we have not seen the end of it yet. In their natural concern to reduce inflation further, I hope that they will not push it to the point where the recession is prolonged unnecessarily. Any Government's economic policy must maintain a balance between inflationary dangers and deflationary problems. While we concede that we went too far in pushing growth and inflation in the late 1980s, I do not want the Government to make the equal and opposite mistake and to persist too long with deflationary policies, given the present state of the economy.
I agree with my right hon. Friend the Member for Shropshire, North (Mr. Biffen), who said that we have an opportunity to lower interest rates and that we should press it. I shall not follow him down the path of Lubyanka and lederhosen, but will simply make the straightforward political point that, while we understood that, for economic and political reasons, the Government could not take risks before the general election, they have forced themselves out of that trap by their skill, and are in a much stronger position. They can take risks, and they should pursue every legitimate opportunity to lower interest rates. I do not believe that we will for ever be bound by the German view of what is right for Europe, and that is becoming the more rational appreciation in the markets and among economists
My second point relates to public expenditure, on which my view is simple: public expenditure has risen, is rising and should be diminished. As my hon. Friend said in his opening remarks, while the Government reduced the share of GDP taken by general Government expenditure during their period in office from 45 per cent. to a low point of about 40 per cent., it is now creeping back towards 43 per cent. That is too high. One argument is that the increase results partly from the recession. Unemployment benefit has increased and as a result public expenditure has increased, but, ineluctably, it will automatically reduce as we emerge from recession.
As the prospects of coming out of recession recede—GNP is already being revised downwards for this year—the problem will remain with us. There again, the Government have an interest in striking the right balance between restarting growth and dealing with public expenditure.
No doubt the Government would also say that part of the public expenditure total was engineered deliberately to flatten out the recession—if public expenditure had not been as high, the recession would certainly have been worse. That argument is all very well at that point in time, but when one begins to emerge from recession the position looks different.
Present fiscal policy is too lax and monetary policy too tight. That is what is wrong with the balance of Government policy. They need to adjust the balance as soon as they can, in the interests of sensible growth.
The Government have achieved a low-income-tax, low-corporation-tax economy. Our continental competitors take far more of their GNP in taxation than we do. We have opened a gap between us and them. That is one reason among many—others are a stable Government, an open trade policy and access to the Community—why we


are making this country a superb place in which to do business. That opportunity is open to us and should be pursued.
However, even if we reduce general Government expenditure to 40 per cent. of GNP, other countries are still below us, such as Japan, where it is 32 per cent., and the United States of America, where it is 37 per cent. America still has a good economy despite all the rubbish which is written about it. They will continue to open the gap, as will many other Asian countries. We have to press further in that direction.
The Chief Secretary wrote a pamphlet not long ago describing his vision of an ultra-low-tax economy, and I share that vision. That is the way forward. It can create the virtuous circle—with lower taxation, one will achieve growth, and although public expenditure declines as a proportion of GDP, absolute expenditure rises in real terms, as my hon. Friend the Financial Secretary said. Although past Conservative Governments have increased the standard of living of the average family by a monumental proportion, in comparison with Labour Governments, they have also kept public expenditure rising at a rate not far short of expenditure under Labour Governments. They have done the two-card trick.
That is the course that I recommend to my right hon. Friend. The Government will know when they have reached the point of success because, precisely at that moment, 365 academic economists will undoubtedly write to The Times to say that their policy is wrong and will never come right, and that the economy can make no progress with that approach. Perhaps that will not happen this time. The academics may have learnt their lesson. However, I am afraid that academics do not usually learn their lesson and are too arrogant to keep quiet.
Perhaps this time, 365 distinguished members of the public sector will condemn the Government, led by the governors of the BBC, the British Medical Association and others, no doubt after a reflective lunch at the Luckham Park or some other watering place. I hope that, when that moment comes, the Government will have seen the success of those policies and will stick to their guns.

Mr. Ken Purchase: I am grateful that you have called me, Madam Deputy Speaker, and, in rising for the first time in the House, I congratulate you on your new position. As you would expect, I extend those congratulations to my fellow west midlander, the new Speaker. In Wolverhampton, North-East many people were delighted at the appointment of Miss Betty Boothroyd to the Speaker's Chair and felt that it brought honour to the west midlands.
I know that it is customary to pay regard to one's predecessors and it gives me considerable pleasure to remind the House of John Baird, who finished serving as a Member in 1964. I recall him visiting my boyhood home during his constituency duties. Later, when I was a young and active trade unionist, I remember the great pleasure of listening to John Baird on his public engagements. He was a great and considerable advocate of equality. I recall reading that, when asked about the honours list, he said, somewhat pithily:
I joined the Labour party to make workers of Lords and not Lords of workers.
That was a considerable statement at the time.
Following John Baird came Renée Short, who had a distinguished parliamentary career, not least as Chair of the Select Committee on Social Services, which produced a number of important reports. One report, with a touch of déjá vu, dealt with the hours of junior doctors, and another seminal one covered maternity services in this country. That report is still widely quoted and much respected, and Renée's work on it will be long remembered.
My immediate predecessor, Mrs. Hicks, will be recalled more for what happened to the people of Wolverhampton, North-East during her term in the House than for what she did. However, I know that she had a sincere understanding of her constituents' needs and that she worked hard during her time in the House to ensure that those needs were met However, it is for what happened during her tenure, particularly the unremitting increase in the number of unemployed in Wolverhampton, North-East, for which Mrs. Hicks will be recalled. On average, 30 people were chasing every vacancy. In the past two years in Wolverhampton, between 50 and 60 unemployed folk have been chasing every vacancy.
In the same period, the social security system was changed. It is no coincidence that there was a tremendous increase in the crime rate at the same time as the young, long-term unemployed experienced such difficulties in finding remunerative work. Those factors are connected, although other considerations must be taken into account.
In the context of changes in the benefit system, many people may share my concern that there has been a poor take-up among elderly people of the benefits available to them. Many of them fear that, if they go to the benefit office for support or for a grant, they will end up with a loan that they cannot possibly repay. I ask hon. Members to recognise that that particular aspect of the benefit system is bound to fail because it does not take into account the great fears that many pensioners have. They share similar fears to their parents who, in the 1930s, were worried about the workhouse and the debtors' gaol. Pensioners still hold such fears, and if the benefit system does not take proper account of them it is no surprise if the take-up of benefit by elderly people is not particularly high.
In my constituency, great distress was caused to a partially sighted man of 70 years who lost what little money he had to take him through a particular week, and faced a weekend with no food in his flat. He attempted to sell bits and pieces of his belongings to make ends meet before his next benefit cheque arrived, but failed to do so. He went to the local benefit office and was offered a loan of £10, but he refused to accept it because he felt that he would be unable to pay it back as his income for the following week would be exactly the same and there was never anything left to spare. We do not want such cases to arise in Great Britain and I urge that benefit officers should be told that grants rather than loans should be given to pensioners in almost every case when an emergency occurs.
The period in which my predecessor, Mrs. Hicks, was in the House was marked by a local authority housing waiting list which grew to its highest level for 25 years. Of course, there are some social reasons for that—such as the unfortunate breakdown of marriages and the number of young people pursuing tenancies in their own right. However, at the heart of the growing waiting list problem lies the fact that local authorities have not been able to


build for need. When that is combined with the fact that many young people starting out fear unemployment and do not take the plunge into buying a house, it has led to considerable housing difficulties in Wolverhampton and elsewhere in the country. Those difficulties are rooted in the fact that local authorities are unable to build for general needs.
Many couples face frustration in their hunt for decent housing. I do not want to witness the tragedy of little children spending their formative years in high-rise flats and five-storey walk-ups. Councils should be able to build for general need so that every young couple has an opportunity to rent or buy property at a price that they can afford and children have an opportunity to play in gardens, as is their absolute right.
It has been my intention that the thread running through my speech should be related to employment—the wealth that it creates and the misery that the lack of it causes. One of the growth areas for employment in recent years has been the worker co-operative movement, in which I have been proud to play some part. At the same time, mainline co-operative societies have faced strong competition, but they have met it by merging and growing. Unfortunately, the tax position of those societies has worsened since 1984 so that the growth in their profits has been overtaken by the growth in their tax burden.
I am sure that that was not the intention, but as the societies have grown and amalgamated to face the competition, they have lost the benefit of the small firms remission of corporation tax. I urge the Government to consider that with some sympathy because the first priority of co-operative societies is not profit maximisation: they depend on retained profits and borrowing to expand and to meet the needs of the shopping public. I believe that they should be encouraged, rather than discouraged as they have been by the loss of the remission.
The reasons that remission was given to co-operative societies are still valid today as co-operatives have an important part to play in the development of employment in our communities. Statistics show that, in 1990–91, such societies paid a much greater rate in tax than they earned in profits. That matter should be addressed by the House.

Mr. Alan Duncan: I am obliged to you, Madam Deputy Speaker, for giving me the opportunity to utter my first words in the House.
I am pleased to speak in the same debate as my right hon. Friend the Member for Shropshire, North (Mr. Biffen), whom I have watched for many years with great respect. Even though he has momentarily left the Chamber, I am also glad to follow my constituency neighbour, the Financial Secretary to the Treasury, who I am pleased to see so happily installed in his new job. I congratulate the hon. Member for Wolverhampton, North-East (Mr. Purchase) on his maiden speech, and I look forward to sparring with him across the Chamber on many future occasions.
Rutland and Melton is an oasis of traditional England between the M1 and the A1. It is surrounded by towns such as Leicester, Nottingham, Grantham—perhaps not so much a town as a shrine—Stamford and Corby. The agricultural interest remains important and, although it

may not please some hon. Members, hunting remains not only popular, but a living force for the interests of conservation.
The constituency also has light industry. Indeed, if one owns a pet, the chances are that one will have fed it with a brand name from Europe's largest canning factory in Melton Mowbray. The constituency also includes Syston and Thurmaston on the edge of Leicester, and the spectacular vale of Belvoir.
Perhaps the constituency is best known for containing the valiant county of Rutland. I took a look at the history books, one of which says:
although Rutland had a distinct status in the Anglo-Saxon period, its rise to the status of shire and the dignity of a sheriff was the product of a confused process in the twelfth century".
That same book states that the 1974 local reforms
removed elements of disorder on the map, such as the foolish county of Rutland.
I say of that author, the more fool him.
Those local government reforms created a hateful mix of the urban and the rural. They trampled over traditional boundaries and ignored community identities. Feeling in Rutland still runs very high indeed and most people want the return of unitary status for the county. And why not? If the cost is not punitive, they should be entitled to the status for which they are asking. I am pleased to say that, thanks to legislation passed by my party, including the Local Government Act 1992, and with the Royal Commission just starting its work, Rutland is given a chance. I implore hon. Members to take Rutland's case seriously and not to dismiss it as a quixotic campaign or to disqualify Rutland simply on the grounds of its size.
I take up the cudgels for Rutland and Melton behind a line of distinguished parlimentarians. For a long time, Rutland was represented by Sir Kenneth Lewis. He still lives in the constituency, and I sometimes think that he has as many friends as there are people in the county. He is a popular figure, always ready with some fatherly advice and a good yarn to tell.
But for 18 years Melton, and then Rutland and Melton, were served by Michael Latham. From a personal point of view, I could not have been more fortunate in the person I shadowed for two years as prospective candidate. All in the area talk of the diligent and conscientious manner in which Michael Latham handled constituency problems. He entered the House with a particular expertise in housing, and Ministers came to value his advice. He developed a reputation for being independent-minded. He was not one to seek office at all costs.
His religious views, and his opinions on the state of Israel particularly, are well known, and it is appropriate that he should have moved on from here to run the Council of Christians and Jews. Contrary to reports, I do not believe that he intends to take holy orders. I hope that that will mean that Michael will not be entirely lost to politics in the years ahead. I am sure that hon. Members join me in wishing him and his wife Caroline every good fortune.
My purpose in speaking today is to welcome the measures in the Finance Bill. The measure marks the continuation of the economic progress that we have made since 1979. Indeed, the determination to tackle economic collapse spurred me above all to enter political activity in the first place.
Particularly welcome are the inheritance tax proposals. They are based on the belief that the successful


accumulation of wealth should be allowed to be passed on. Why—as it appears many Opposition Members would have it—should every generation be required to go back to square one, based on some misplaced understanding of what equality of 'opportunity involves? The Bill will benefit family farms and family businesses, and I welcome the measures so well defended by my hon. Friend the Member for Bridlington (Mr. Townend).
Any Bill designed to alter the rules of taxation inevitably provokes a litany of special pleading, and it is the unenviable task of the Chancellor and his team to distinguish naked self-interest from a good case. In his original Budget statement, the Chancellor referred to surplus advanced corporation tax—to some, perhaps, a rather abtruse matter. Some companies are taxed in the United Kingdom on estimates of their earnings overseas. Indeed, they are overtaxed, but they are stuck with the position.
The effect is to reduce the research and development that such companies would carry out in this country, and it works against their wishing to set up their headquarters in the United Kingdom. That was not intended to flow from the imputation tax system that developed in the 1970s, and I hope that the Chancellor will reconsider in the years ahead the effects of the measure.
The Bill contains many welcome measures affecting the operation of VAT, especially the removal of fiscal frontier controls. But there remain some simple, practical difficulties in the administration of VAT that should be addressed particularly as no cost would be involved.
I could cite the example of a haulage contractor based in Melton Mowbray who pays VAT on his fuel purchases in other EC member countries. As a business, he is entitled to reclaim it, but he does not get it back, as least not for months and sometimes even years. We decent Brits repay overseas claimants quickly, but that efficiency is not reciprocated. So again, our comparative sense of fair play works more to the benefit of our competitors than to that of our exporting businesses. I urge the Revenue to take a good look at the fair working of the refunding of VAT elsewhere in the Community.
I hope that the Finance Bill is but a prelude to our addressing certain long-term objectives for the economy. Some of the nastier consequences of the recession flow from the extent to which the fortunes of businesses and individuals are critically affected by changes in interest rates. We have a structural problem, in part a cultural one. Far too much of our investment funding in based on debt rather than on equity. It should become one of the major challenges of this Parliament to address the question of how to shift investment from debt to equity, because part of the problem arises from the simple fact that debt servicing is tax-deductible, while the cost of equity servicing is not.
Hand in hand with that is the objective of overseeing recovery without massive house price inflation. As many of my hon. Friends know, wary though I am of taking further steps towards monetary union, I believe that the ERM might yet prove a blessing, in that its effect will be to iron out the peaks and troughs which in the past have been damagingly extreme.
I am all for people owning their homes, but we do better to persuade them not to look on their houses as a tax-free source of easy riches on which they can regularly draw. I

would rather we promoted a savings culture in which individuals increasingly had a genuine stake in the economy, and the key to that is pensions.
At present, our pensions rules are unfathomable. A personal pension attaching unequivocally to the person who has invested in it will lead to private capital accumulation in areas other than housing. Why cannot employees in the public sector pay their contributions into private schemes? We should take a long-term view, for the time has come when people should be allowed to do that.
By tackling such structural deficiencies in the economy, we could provoke a major change in the economic fortunes of individuals. I share the Chancellor's vision of a capital-owning democracy. I hope that we can see an economy in which individuals increasingly build their own stake in it. I hope that we can promote a savings culture out of which dependency on the state will be reduced and self-reliance increased. If, to set the tone, a strict settlement of our public expenditure commitments is demanded, the Chancellor and his team will have vigorous support in their efforts from this quarter.

Mr. John Battle: I congratulate the hon. Member for Rutland and Melton (Mr. Duncan) on a witty and thought-provoking speech. Listening to him, I felt that my constituency in the inner city of Leeds was worlds away from his. I agree that we should be addressing the long-term structural problems facing our economy but, unlike the hon. Gentleman, I do not believe that the Finance Bill even starts to do that. We are faced with the leftovers of the pre-election tax-cutting bribe of a Budget that was rushed through the House in March.
In response to the Finance Secretary's speech, I would point out that, on 9 April, the people of Leeds, West delivered their verdict on the Budget and the Finance Bill: they overwhelmingly rejected them because they felt that they do not address their problems. Like the recent Queen's Speech, there is nothing in the Bill to tackle the rising unemployment that so many of my constituents face. According to the Government's last April figures, unemployment in my constituency is running at 10·7 per cent. That is a 17 per cent. increase on April last year. However, there are no practical measures in the Budget to tackle long-term unemployment, which is becoming a primary cause of poverty, particularly when financial assistance to the unemployed is so inadequate.
In his former life, before he converted to Treasury ways, the Financial Secretary voted against Government moves to cut unemployment benefit. I hope that he continues in that strategy, but I suspect from his speech that we shall not see him defending unemployment benefit.
There are no measures in the Bill to address the problems of the change in the labour market. There is now a fracture between what might be described as the primary restricted market, offering relatively secure, well-paid employment, and an expanding secondary labour market in which employment is temporary, irregular or part-time and often badly paid.
There is not much in the Finance Bill for the homeless and those in my constituency who desperately need a decent, adequate home at a rent that they can afford. There is not even a clause to enable local authorities to use their accumulated capital receipts from the sale of council houses. There is no extension of last year's moratorium on


stamp duty. Despite the fact that, in 1991, 75,500 homes were repossessed because people could not keep up mortgage repayments, all that the Bill offers, in clause 36, is a tinkering with the business expansion scheme.
In other words, the Bill is characterised by its omissions. It is remarkable for its silences on matters that affect thousands of our constituents who want something to address their real economic circumstances. The Bill is part of the Government's strategy of simply sustaining the impression that there are no economic problems left since the general election. The Government are putting across the impression that unemployment has not escalated; that, in the first three months of 1992, 14,900 firms did not go bust; that homelessness on our streets and in the doorways of our major cities is an illusion; that low and lowering pay is not a reality for many people.
The President of the Board of Trade, speaking recently at a conference organised by The Sunday Times, called for pay restraint. Rather than addressing the average unit labour cost, he would have done better to address the board of directors' rake offs, which have been running at 9·3 per cent. Most of my constituents earn nowhere near the average wage of nearly £400 a week for the male earner, and many women earn even less.
In the debate on the last Finance Bill, the then Chief Secretary said:
It is always difficult to forecast a turning point, but there is now accumulating evidence of one.
He referred to
a marked increase in optimism and output expectations
and spoke of the "recovery in confidence". He said:
We are confident that it will lead to an increase in activity … We must remember how far we have come from a stagnant economy.
Later, he said:
perception is lagging behind reality."—[O? official Report, 30 April 1991; Vol. 190, c. 178–80.]
We have not come very far from that "stagnant economy". The Government have still not yet caught up with the reality behind their perceptions. The number of people unemployed for over a year is now 841,000—an increase by 94,000 in the first quarter of this year. Unemployment has now risen for 25 consecutive months. Last month alone, 42,600 people lost their jobs. The National Institute of Economic and Social Research forecasts that unemployment will remain at almost 3 million for the next five years. That is the prospect that we face despite the Government's assurance a year ago that we had come out of a "stagnant economy".
The public sector borrowing requirement is projected at a staggering £34 billion for this financial year, and the Government are saying that they cannot get it down without swingeing cuts in public expenditure. I predict that, despite protestations in the Chamber and in the papers, the Government will come to the House before too long to announce that they have abolished zero rating of VAT so as to tackle the size of the PSBR. The only other way to tackle it is to increase personal taxation, and the Government are committed to go in the other direction.
Manufacturing investment fell by 11 per cent. to the first quarter of 1992 and is 27 per cent. lower than at its peak in the first quarter of 1990. In constituencies such as mine, which is dependent on the engineering, textile and

printing industries, that means that work in manufacturing has gone and will not come back because the Government will not commit resources to investment in manufacturing.
Interestingly, yesterday in Rio, the Secretary of State for the Environment told the world that the major nations were
in the middle of a very, very bad recession.
When we come to the House to protest about high levels of unemployment, we are told by Ministers that the country is coming out of the recession. That is the line for consumption at home, but abroad they say that we are in the depths of a recession.
Yesterday, my local newspaper, the Yorkshire Evening Post had a report on the struggle of students to find jobs over the summer break. Young people bear the brunt of unemployment, and young people in further education, who cannot claim benefit during the holidays and who cannot get grants, have to find work somewhere to make ends meet. The report says:
The annual hunt for summer jobs looks set to be tougher than ever with recession still taking its toll on traditional employers of casual workers.
According to the Department of Employment in Leeds, the amount of casual work on offer is down on last year. The total number of temporary jobs for the summer available in the city last week was 39, including vacancies for bar staff, cleaners and secretaries. There are not too many signs of recovery there, when even casual labour has almost totally dried up.
The Finance Bill could make improvements. Why do not the Government use clause 53 and schedule 11, which make tax changes for insolvent companies, to tackle a loophole in insolvency law which means that the occupational pensions of hundreds of people are in jeopardy from the Maxwell collapse? I suspect that that is merely the tip of a pension crash iceberg. The Government should change the rules and protect pensions.
The hon. Member for Rutland and Melton said that the pension rules were unfathomable. What is more than obvious in recent weeks is that occupational pensions are unprotected because the Government have not enacted sufficient protection measures for those pensions. Why cannot the Bill be used for that?
On a more positive note, why cannot the Government amend clause 48 and schedule 9 in order to foster and encourage the formation and growth of local community credit unions? That would be a practical and positive way in which to take people out of personal consumer debt and help those who are often left in the hands of the loan sharks. That would be better than raising inheritance tax thresholds simply to make it easier for owners of farms and family companies to pass on land and shares to their descendants. Clauses 58 and 59 and schedule 13 effectively take some 3,000 private estates in Britain out of inheritance tax altogether. That is hardly the hallmark of the classless society that the Prime Minister claims to be creating.
Clause 60 and schedule 14 deal with petrol tax. In this week of all weeks, with the Earth summit, would it not have been better for the Government to fund a complete review of the privatisation of public transport, particularly the bus sector, and then ensure that there is investment in public transport so that it becomes a positive economic alternative to cars?
The Government suggest that they cannot do anything, that they have no power, but they have just been elected to power. They cannot pretend, like a sympathetic, hand-wringing bystander, that they can do nothing. People will not allow the Government to hide behind paper charters while secretly manipulating the country's resources and pretending that there is nothing that can be done about the economy.
There is insufficient in the Finance Bill to address the fundamental problems that have been referred to of the need to provide employment and training and investment in our manufacturing base. The Bill simply shows that the Government are still prepared to give away twice as much money in personal tax cuts—about £1·8 billion—as they are prepared to give to industry, commerce and training to fight the recession—a mere £800 million.
I conclude with just a few observations from an essay by J. K. Galbraith, based on his latest book, "The Culture of Contentment". In that book, he spells out how an "underclass" is an integral part of a larger economic process serving the living standards and the comfort of the more favoured community, and how the economically fortunate are dependent on the presence of that "underclass". That "underclass" is increasingly denied any generational upward economic movement in our society and so becomes semi-permanent, frustrated and discontented.
Galbraith says:
It is an occasion for wonder that the discontent and its more violent and aggressive manifestations are not greater than they are.
He continues:
Nothing in the age of contentment has contributed so strongly to income inequality as the reduction of taxes on the rich.
He concludes:
Life in the great cities in general could be improved, and only will be improved, by public action—by better schools with better-paid teachers, by strong, well-financed welfare services, by counselling on drug addiction, by employment training, by public investment in the housing that in no industrial country is provided for the poor by private enterprise, by adequately supported recreational facilities, libraries and police. The question once again, much accommodating rhetoric to the contrary, is not what can be done but what will be paid.
Sadly, that is a question that the Finance Bill does not address.

Mr. Roger Moate: The hon. Member for Leeds, West (Mr. Battle) will not be surprised to hear that I do not agree with much of his rather dismal analysis—

Mr. Battle: The hon. Gentleman does not live where I do.

Mr. Moate: —and gloomy predictions, despite the fact that we in the south-east of England also have quite severe problems resulting from unemployment and recession. However, the economic signs are rather brighter than the hon. Gentleman would suggest, and the Finance Bill will contribute significantly to the economic recovery that is on its way, albeit too slowly for most hon. Members.
I agree with the hon. Gentleman, however, in the tribute that he paid to my hon. Friend the Member for Rutland and Melton (Mr. Duncan). My hon. Friend made

what I think we all thought was a most eloquent, amusing and powerful speech and I appreciated his generous tribute to his predecessor, Michael Latham.
I also take this opportunity to say how much I enjoyed the powerful speech made by my hon. Friend the Member for Orpington (Mr. Horam). In his previous incarnation, he was one of the most courteous, responsive and helpful Ministers, and if I did not say so at the time, he will understand that the circumstances were rather different.
The introduction of the new 20 per cent. tax band in the Budget was a most skilful and welcome proposition which was a key factor in the general election. It was a skilful use of limited resources which demonstrated the contrast between the Conservative party's belief in lower taxation and the Liberal and Labour parties' declared belief in higher taxation. The electorate understood that there were only limited resources and that the band could only be small at this stage, but that the measure was a pointer of hope for the future and a sign of how we intend to progress in years to come.
That aspect of the Budget was crucial. It was a skilful use of resources on which the electorate passed judgment —despite the view of the hon. Member for Berwick-upon-Tweed (Mr. Beith), who seemed to suggest that the election proved that there was a vote for increases in taxation. The hon. Gentleman can convince himself of anything.
I want to address one particular point on which other hon. Members have touched. It is a specific point and I make no apologies for raising it because I suspect that this is the last serious chance that we shall have to persuade the Government to change their mind. I refer to something that is not in the Finance Bill, should he in the Finance Bill and perhaps—is it too much to hope?—will be in the Finance Bill by Third Reading. That is, the elimination of stamp duty on house purchase.
We all know that an exemption was introduced last autumn to try to stimulate the housing market. Can anyone deny that the housing market is still in need of stimulation? It is hardly logical that we should now be proposing to reintroduce stamp duty in August this year when the housing market is in such difficulties. I urge my right hon. and hon. Friends to reconsider the position now and to use this opportunity to think again about making permanent not just exemption from but—I go further—the elimination of stamp duty.
For years, many of us have argued that stamp duty on house purchase is an unjust and unfair tax. I think that all hon. Members believe in home ownership, despite different emphases, so it is illogical to have a tax on home ownership, particularly a tax which impinges when people are struggling hardest to buy their own home. We are almost getting rid of the tax. Exemption from it exists until August this year. Is it not ironic that, having come so close to eliminating the tax from the statute book, we are proposing to bring it back?
We are told that the revenue implications of the exemption from stamp duty would be too serious. I hope that my right hon. and hon. Friends will answer this point specifically. I cannot see how that can be correct. We were told at the time of the exemption that it could be afforded because the £1 billion that it would cost would not be required until 1993 as a result of the introduction of the TAURUS system on the stock exchange. Therefore, at the


very least, we can afford further tax relief on housing for the rest of this year and into next year. The same argument applies.
A pick-up in the housing market may make the cost to the Exchequer even greater, but such a sign of economic activity would mean that we could afford to make tax relief on stamp duty permanent. That change would be welcomed. Last year, we were told that the cost of suspending stamp duty would be £400 million in a full 12 months. I do not believe that that is the measure of relief, because the housing market has not been that buoyant. We ought to be given facts and figures as to the real cost of the temporary relief, which I argue strongly should be made permanent.
In what other area of taxation does a zero rate operate, on a permanent basis, up to a figure of £30,000, and then a full rate on the whole amount? At present, there is stamp duty exemption up to £249,000, after which 1 per cent. is payable on the whole transaction. It is a most unjust and unfair tax, and few people could justify it except on the ground of revenue need.
The current need is to take action that will stimulate the housing market. I urge my hon. Friend the Economic Secretary not to allow stamp duty relief to be discontinued on 19 August. That is an arbitrary and unreasonable proposition. Instead, he should take the opportunity provided by the Bill to offer some help to home owners and to the housing market.

Mrs. Barbara Roche: During the general election campaign, the Government said that, if they were re-elected, there would be movement in the economy. Despite all the talk, Britain is still in recession. The Government say that business wants to be certain of the economy's overall condition. That is perhaps the only sentiment expressed by Ministers with which I can agree. Business does want to know with certainty what is the state of the economy.
Gross domestic product fell again in the first quarter of this year, as did manufacturing investment. Even the slight improvement in retail sales was counterbalanced by the appalling surge in our trade deficit, which seriously puts in question any sustained recovery. Unemployment continues to climb month after month, hitting individuals and their families and sapping morale. Behind every statistic there are human tragedies.
The recession has hit every region hard, but nowhere harder than London and the south-east. Unemployment in London, as in the rest of the United Kingdom, remains high and is rising, and many Londoners are finding it difficult to pay their way out of the highly geared situation in which they find themselves. That makes it unlikely that London's economy will be able to spend its way to recovery.
In Hornsey and Wood Green, more than 100 people chase every job vacancy. They are desperate; they look for work every day but are unable to find it. A similar picture is to be found throughout London, with the percentage of employees working in the service sector declining, and the construction sector facing the acute problems of the housing and office markets.
The sad debacle of the docklands—vaunted in the 1980s as the Conservatives' dream city, but now lying idle —tells its own story. The Prime Minister still considers the docklands
one of the most remarkable projects one will find anywhere in the world.
To Londoners, it is a symbol of failed Conservatism—an unbending ideological commitment to the market, whatever the human cost. The Evening Standard is seldom thought of as a newspaper that is sympathetic to the Labour party, but on Friday it described London as "Ghost City, 1992", where,
as the To Let sign becomes the dominant feature of London's cityscape … great swathes of London could become a kind of European Brasilia—all architectural style and little content, the silence broken only by the footsteps of the security guards.
That is a devastating forecast for those of us who represent London constituencies and who love the capital.
The Government's refusal to invest in the Jubilee line extension, which is so badly needed if south-east and east London are to be rejuvenated, is symptomatic of another of London's problems: the continuing trend among top companies to relocate outside London. Who can blame them, when one considers London's transport infrastructure? Last April's survey by the Association of London Authorities of commuter fares in Europe showed that London had the highest fares in the Community.
The tragic human face of recession can be glimpsed in repossession figures for London and the United Kingdom as a whole. My hon. Friend the Member for Leeds, West (Mr. Battle) referred to the 75,000 families who lost their homes in 1991—the highest figure on record, and an increase of 72 per cent. on 1990. Mortgage levels show a similar sad tale, with one in 12 mortgage payers two months or more in arrears—another record level.

Mr. Rhodri Morgan: One of the most frightening statistics of all is that more than I million families in south-east England have a mortgage debt that exceeds the value of their homes. They are unable to sell or to move, because they would immediately become insolvent.

Mrs. Roche: I am sure that right hon. and hon. Members in all parts of the House are visited in their surgeries by constituents who have problems with mortgage arrears.
Londoners deserve better. London should once again be a world-class capital, but unfortunately the Bill contributes nothing to that. London needs investment in training, education, research, and development. I urge the Government to think again and to do something for London. When we do something for London, we shall be doing something for Britain as a whole, and for our economic future.

Mr. Clive Betts: In judging the effectiveness of the Finance Bill, we ought to ascertain whether it will assist in the growth of our national resources, and in their distribution between our citizens. My constituents want to know what the Bill will achieve in terms of employment. Those who have a job want to know whether they are more likely to keep it. Those who are unemployed want to know whether they are more likely to get a job. My constituents want to know what the Bill will


do not only to their take-home pay but to their quality of life, in terms of the public services upon which they and their families rely.
Earlier, the Financial Secretary spoke of the Budget's contribution to the Government's victory in the general election. That victory was secured not only on the Government's record but on their promises, and now the Government must fulfil their promises. Their fulfilment may prove a good deal more difficult than their making.
The Government are responsible for the recession that dominates our economic life at present. The brakes were slammed on following the Lawson boom, but during the election campaign the Government tried to gloss over that fact with frequent references to the international aspects of recession, claiming that Britain was merely one of a number of countries suffering from the same problems. The Chancellor mentioned the recession in Germany in his Budget speech. It is interesting that he should have singled out that country. Last year, Germany was the only other European Community country in recession. The rest of Europe experienced a growth in output of 1·4 per cent., while this country suffered from recession throughout the same period.
In the Finance Bill, we should be looking for ways of emerging from recession and assisting recovery. It is interesting to note that the Government have almost stopped talking about what the Bill will do to assist recovery; now, they almost take pride in saying that they are doing nothing—that they are simply sitting back and waiting for recovery to happen.
Significantly, there are no discernible signs of recovery in any of the daily or weekly indicators. That is especially true of those that have appeared since the general election. The Government, however, should not worry only about the fact that there are no signs of recovery at present; they should ask how long such a recovery will last—if, indeed, it comes at all —and how strong it will be. There are no signs of recovery in the manufacturing industry in my Sheffield constituency, and no signs of job creation. No investment is taking place. The suggestion that manufacturing industry would be willing to invest as soon as the result of the election was known has simply not been borne out.
All that my constituents see is the prospect of unemployment not only remaining high, but rising further. All that the small businesses in my constituency see is a worsening prospect of being put out of business, rather than the hope of future recovery. As for the retail industry, we all see in our towns and cities not the prospect of recovery, but the reality of shops being boarded up daily and weekly.
Is housing supposed to get us out of recession? There is little evidence of recovery in the private sector. Throughout the debate, Conservative Members have referred to the proposal to reinstate stamp duty, the temporary abolition of which represents the one small effort that the Government have made to bring about recovery in housing. As for their public-sector housing record, it continues to be deplorable in every way. Indeed, an Audit Commission report produced the other day condemned the Government on both economic and social grounds.
The Government could have included in the Bill a measure to stimulate economic recovery by putting people to work in the construction industry, at the same time providing homes for those who are currently homeless.

That would not have cost them a penny. Sheffield city council has £21 million in capital receipts this year: it has this money in its coffers, which it could spend tomorrow if the Government would only remove the restrictions on such spending. That is the kind of assistance that they could give if they chose to do so.
All that we have heard from Conservative Members about public-sector help is a request for the Government to get tough with spending Departments in the coming financial round. When Conservative Members talk about getting tough with spending Departments, they really mean getting tough with the homeless, the sick, children and the elderly, for those are the people who rely on large spending Departments to deliver the services that they want.
Ours is not simply a short-term problem. The Government should concentrate not only on recovery in the short term; major failings can be seen in the medium and long term as well, and the Bill does not address them. Let us examine the Government's claimed achievements. Apparently, all the heartache of unemployment and all the problems of recession are necessary simply to lower inflation to a reasonable level. It seems to me that the Government's one achievement—their one claimed achievement, even—is the lowering of inflation. In any event, in historical terms 5·7 per cent. is not particularly low.
Achieving that level of inflation has necessitated a further rise in unemployment. The last set of figures showed not merely an increase, but a rising rate of increase. The level has risen from a record level in boom conditions. Meanwhile, there is no growth in the economy. As the right hon. Member for Shropshire, North (Mr. Biffen) pointed out an hour or so ago, although the Government claim credit for interest rate reductions, reductions in interest rates are themselves not real, but only apparent. Because of the fall in inflation that took place at the same time, real interest rates have risen during the period in which the Government have presided over the longest recession in post-war Britain. As yet, the Government have given us no answers to explain that major contradiction.
The right hon. Member for Shropshire, North drew some interesting comparisons between indicators. The Government face real problems, and they must deal with those problems. At a time of record recession and record rises in unemployment, why does our balance of payments show not merely a deficit, but a deficit that is beginning to grow? A public sector borrowing requirement of £28 billion is forecast. That figure is camouflaged by receipts from privatisations; moreover, according to all the current estimates, the PSBR is likely to increase to £40 billion by the end of the year. Surely we are seeing a very special kind of economic mismanagement when a Government preside over a rapidly rising balance of payments deficit and a rapidly rising PSBR at the same time. The Government must resolve that problem, and the problem of conflicting indicators.
The root of these problems is the Government's long-term mismanagement of the economy. They have failed to invest in infrastructure in both the public and the private sector. Our economy needs more than a way of emerging from a short-term recession. It is not just a matter of addressing the medium-term issues; a proper, sustained and planned long-term economic approach is


required. We need a long-term plan for public-sector investment if we are to secure the infrastructure that other European Community countries have.
Let us consider the Government's record. The issue of Canary Wharf and docklands has been raised this afternoon; alongside that is the question of the rail link with the channel tunnel. The channel tunnel is supposed to be one of the great efforts at investment in infrastructure to benefit our economy as a result of growing ties with Europe, but there is still considerable uncertainty about where—and, indeed, whether—the rail link will be built. It is disgraceful that we are not constructing that link now, but are arguing about where it should be built, and whether it should be built at all.
In terms of benefit to Sheffield, there has been no meaningful discussion, let alone any real investment, in connection with a link not between the tunnel and London but on to the north, so that that area too can gain long-term economic benefits from trade with Europe, and from being part of the European Community. Where is the Government's plan for that, and where will the investment come from?
Where are the plans and investment to deal with the way in which we move people around in our cities? What are the Government's proposals? Bus deregulation in 1986 has beent their only offering in that regard, and it has proved disastrous for the economic and social life of our major cities. The Government are now investing in a light rail system, but we should compare Sheffield with its twin city, Bochum in Germany. Bochum's bus service has not been deregulated. It has an efficient tramway and light rail system and a regional rail network, and it has invested in inter-city rail services. Its economy is far more advanced than ours.
We have also failed to invest in education and training, the personal as well as the physical infrastructure. We lack, therefore, the ingredients for long-term competitiveness.
As for the way that we are treating small businesses during the recession—the seedcorn of our future economic growth—as the chair of the south Yorkshire pensions authority, I have witnessed during the recession small firms applying in their hundreds for venture capital investment. No other financial institutions were willing to invest in them. The Finance Bill does not address the fundamental question of how to channel finance from the financial institutions into manufacturing and other industries, so that wealth can be created in order to sustain long-term growth and recovery.
Conservative Members ought to be asking why the Government are not putting forward proposals to sustain and develop small firms. That key issue must be addressed. The Finance Bill fails to provide assistance towards short-term economic recovery. Moreover, the Bill does not deal with medium-term problems, including the conflict between the balance of payments deficit on the one hand and record levels of unemployment and record low levels of growth on the other. It fails also to address long-term investment issues, including improvements to the infrastructure. Furthermore, it includes nothing that would assist the development and growth of small firms.

Dr. John Marek: Tonight we are debating the Finance Bill, some two months after the general election when the Conservative party obtained roughly the same share as it did last time and the time before—42·8 per cent. of the poll. Under the present electoral system, that is once again being translated into a Conservative overall majority in the House of Commons, but this time the Government have only 336 seats. Nevertheless, that represents 51·6 per cent. of the total number of seats.
The Chancellor of the Exchequer regards that as a ringing endorsement of the Government. In the debate on the Queen's Speech, he said:
the British people have given a ringing endorsement of the Government's economic policies, and decisively rejected the tired shop-worn policies of the right hon. and learned Gentleman and his colleagues."—[O? official Report, 13 May 1992; Vol. 207, c. 628.]
He was, of course, referring to my right hon. and learned Friend the Member for Monklands, East (Mr. Smith). What he failed, however, to grapple with was the arithmetic. Any ringing endorsement would have demanded, I should have thought, at least 50 per cent., and 42·6 per cent. is considerably short of that. This Chancellor of the Exchequer, who is in charge of the nation's finances, is incapable of moderating his language and his adjectives.
Furthermore, at the Conservative party conference on 11 October 1990, the Chief Secretary said of the poll tax:
Let us go out from this hall together and proclaim its advantages. The community charge makes local government accountable. The community charge revives local democracy. The community charge puts power into the hands of local people. That, ladies and gentlemen, is an achievement to be proud of.
However, the Chief Secretary's achievement has been to squander £19 billion of taxpayers' money. That sum would have gone a considerable way towards wiping out the forthcoming public sector borrowing requirement. That man, translated from the Department of the Environment to the Treasury, is now in charge of the nation's economy. I fear that that is a bad omen for the next three or four years.
Reasonable people—I do not regard the Chief Secretary or the Chancellor of the Exchequer as reasonable in this respect—might have thought that the Government's new majority, which is very much smaller than the Conservative party obtained for the last Parliament, would at least have led to some measures of a more consensual nature, which the majority of electors who voted against the Conservatives would have recognised as necessary and beneficial for the country.
A foreign journalist might have been tempted to write a piece saying that the Tories had had a major reverse, that they had lost 40 seats and that they needed to rethink their policies on such matters as how to get out of the recession and how to stop hospital waiting lists from growing to all-time highs. The waiting lists are higher now than they were during the winter of discontent. That is an utter condemnation of the Conservative party.

Mr. Dorrell: Wrong

Dr. Marek: It is not wrong. I have the statistics here. I shall pass them to the Financial Secretary so that he can educate himself.
The Tory party could also, according to the foreign journalist, have thought about how to cut the burden of


taxation. It is much higher now that it was under Labour in the 1970s. The Tory party might also, according to the foreign journalist's piece, have thought about how to regulate the seamy side of the City and, above all, about how to get people back to work and provide enough homes for every family to live in. But not a bit of it.
This second Finance Bill simply puts into effect measures that were announced in the March Budget that were not included in the Finance Bill introduced before the election. Any foreign journalist, and many hon. Members on this side of the House reading the Bill, could remark only upon its inconsequentiality when it comes to the great economic issues that face the country.
Despite that lack of substance, we have had a good debate. A number of Members have made some very good points. As usual, my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) made a succinct and clear critique of the Bill.
I wish to refer to the maiden speech, or perhaps it was a quasi-maiden speech, of the hon. Member for Orpington (Mr. Horam). Certain parts of his speech were clearly not pure Thatcher, especially when he urged the House not to treat inflation as the judge and jury of Government policies and when he asked the Government to get us out of recession and not to worry too much about inflation. I thought that I saw a few of his hon. Friends looking into the distance when he made his speech. Nevertheless, it was very interesting and I was pleased to hear it.
My hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase) made a telling maiden speech. He spoke from the heart about the problems faced by his constituents when it came to the benefits for which they have to apply when out of work. His statement about making workers out of lords and not lords out of workers is one about which I shall have to think for a little longer before I come to a decision as to its validity. It may need just a few qualifications. Nevertheless, I was glad to hear my hon. Friend.
I suspect that the result of the maiden speech of the hon. Member for Rutland and Melton (Mr. Duncan) will be that we shall hear more of Rutland in this Chamber. If his speech is anything to go by, the hon. Gentleman will pay great regard to the needs of his constituents. He referred to the fact that Finance Bills involve special pleading. I have to say to him in a nice way, since it was a maiden speech —though I had to choke back an intervention when he made the point—that special pleading usually comes when 40 or 50 new clauses are tabled by his hon. Friends for the Committee stage of a Finance Bill. I hope, therefore, that he will be a member of the Committee, when I shall ask him to monitor the special pleading with me and my hon. Friends.
My hon. Friend the Member for Leeds, West (Mr. Battle) made his usual speech—[Interruption.] His points were valid and well put. My hon. Friend the Member for Hornsey and Wood Green (Mrs. Roche), speaking for the second time, spoke about London. She is right to say that London has one of the most decrepit transport systems. Something must be done. Hon. Members have only to go to any other capital city in western Europe to see that my hon. Friend is right.
My hon. Friend the Member for Sheffield, Attercliffe (Mr. Betts) spoke well. It was not a maiden speech, and I am sure that we will hear many more contributions from him about the difficulties facing Sheffield in the recession.
We charge that the Government are smug and self-satisfied. They know that they need not be in a hurry, as there is some time before they have to face the electorate again. They are prepared to see our present economic troubles continue with a substantial minority of people living in poverty. Since the election, it has become clear that the Chancellor's estimate of a £28 billion public sector borrowing requirement for 1992–93 was either incompetent or mischievous. In spite of 13 years of Tory rule, public finances are in a desperate state.
It is widely believed that the Treasury now thinks that the deficit will be over £30 billion, as opposed to the £28 billion forecast at the time of the Budget, and that next year it will be about £40 billion. That represents 6 per cent. of GDP. Hon. Members will note that that is double the suggested maximum in the Maastricht treaty. The Government have some way to go before achieving what the Maastricht treaty says should be achieved in the United Kingdom.
In addition, last month's trade figures showed that the current account was above £1 billion again, so I doubt whether the Treasury's forecast of 3 per cent. growth for the years 1993–94 and onwards can be achieved without an early balance of payments crisis. At least in previous Tory-inspired recessions—1974–75 and 1980–81—we had a balance of payments surplus. Not this time—we are in a hole. When a Conservative Government get the country's economy into a mess, the Labour party is usually called upon by the electors to form a Government and get us out of trouble. This time, 42·8 per cent. of the electorate have inflicted another Conservative Government on the country, and it is up to that Government to do something about the recession.
I search in vain in the Finance Bill for any new Government action. It was once said that economic management is like trying to drive a fast car with the aid of only a rear view mirror. The Government are driving the economy in precisely that way, with the aid of a road map called the free market. They are blind as to where the car is going. The car is sliding dangerously on mud at the roadside while the Government continue to behave as if nothing is happening. They are unbearably complacent. If they were to shake themselves out of that complacency, they would do something about manufacturing industry.
In the first quarter of 1992, GDP has fallen yet again by 0·6 per cent. The Treasury said that GDP would recover by 2 per cent. in this financial year. However, the latest figures show GDP coming back by only 1 per cent. at the very best.
Ministers blithely assert that, as exports had increased in volume terms by 3 per cent., the trade figures could be largely discounted and, indeed, were something of a success. Unfortunately, that is not so. With the pound locked into the ERM, what will the Government do if, at the slightest hint of an upturn, it becomes painfully clear that imports will be sucked in to such a catastrophic extent? It is the balance of payments that matters and no amount of ministerial spin-doctoring on the radio will get around that awkward fact.
The Government must extend their economic management. Trading off unemployment against inflation without making use of other economic powers that the Chancellor has at his disposal simply does not work, and, even worse, it creates two nations. The latest unemployment figures show an increase of 42,600 in April. The Government calculated total stands at 2·6 million—9·5 per cent. of the


work force. Many others, particularly women, are looking for work and do not appear in the figures. If unemployment were judged in a fairer and more moral way, we would say that it was now 3·8 million.
Is low unemployment in any way a target of Government economic policy or is it simply traded off against inflation with other economic and fiscal policies lying idle and not being used to cut unemployment and inflation at one and the same time? That is what a Labour Government would be doing now.

Dr. Robert Spink: rose—

Dr. Marek: I would give way, but I am afraid that the Government Front Bench spokesman wants me to get on.
In a nutshell, we have a high PSBR of at least £30 billion this year, rising to about £40 billion, which will represent 6 per cent. of GDP—twice the maximum level in the Maastricht treaty; we have a contracting GDP, which is 0·6 per cent. down this quarter, the seventh quarter in succession in which it has gone down, making this one of the worst recessions ever; we have a serious balance of payments problem, and we cannot get out of it by devaluation; and imports outstrip exports at the slightest hint of an upturn.
There is no doubt that a major cause of the present lamentable or, as my hon. Friend the Member for Newcastle upon Tyne, East (Mr. Brown) would say, "Lamontable," situation is the Government's neglect of industry. One of the most depressing facts is that the United Kingdom is the only EC country where manufacturing investment is lower now than it was in 1979. But, there we are, the Government must take responsibility and answer to the people. They cannot continue to do nothing or scramble about trying to get another 0·5 per cent. cut in interest rates. That will not be enough. Unless the Government act now, our position will continue to worsen when compared with other EC countries.
It is possible that we could get out of these problems by strong world economic growth. However, that will not happen. Only yesterday the Centre for Economic Forecasting said that world growth "will be slight". If the Government do not act, unemployment will continue to rise to even higher, morally unacceptable levels. There will no doubt be painful cuts in the public expenditure round in the autumn and £19 billion will suddenly become a great sum. Our housing crisis will continue to worsen, training programmes will continue to be underfunded, school classes will be too large, the NHS will continue to lose beds and British Rail, the most crowded and least punctual service in western Europe, will continue to be badly funded. All that will continue with taxation higher now than it was in 1979.
The comparison with Canary Wharf is instructive. The building is about 42·8 per cent. full, and Olympia and York has too great a borrowing requirement, with the result that work on the project has stopped. That is what is likely to happen to the economy, and it is certainly similar to driving a car using only a rear mirror. Blind faith in Thatcherite policies has led to the present sorry mess at Canary Wharf. It is an ugly and intrusive building that nobody wants in an area that nobody can get to. It is a development hungry for more public money.
The Opposition believe that, although the scheme should now succeed, public money should have been better spent. Industry needs to be looked after to produce goods made in this country. Unemployment is a social evil and should not be traded off against keeping inflation down when there are other policies available that would keep both down. We believe that our infrastructure needs public finance and should be as good as elsewhere in the Community. We need a society in which those who need help get it from those who can give it for the benefit of the community as a whole.
The Finance Bill does none of those things. Hon. Members can look in vain for the slightest iota of something to help the economy, help us get out of recession, help the unemployed, those who do not have a house in which to live and those whose children are being educated in over-large classes. They will find nothing on any of those matters and it is for that reason that I urge my hon. Friends to vote against the Bill.

The Economic Secretary to the Treasury (Mr. Anthony Nelson): As the hon. Member for Wrexham (Dr. Marek) said, this has been a short but interesting debate, notable not only for the range of subjects discussed within the curtilage of a Finance Bill but for three outstanding maiden speeches, to which I shall refer.
I hope that, in the short time that I intend to take winding up the debate, the House will permit me to start by paying my tribute to my predecessor, John Maples, who was widely recognised on both sides of the House as an affable man of great professional expertise and competence. From my short time in office, I know that he will be an extremely hard act to follow. I hope that his absence from the House is only an interlude and that he will be back with us soon.
I hope, if I am going to be tail-end Charlie in such debates, that I will do what Ministers replying to debates do not do enough—mention hon. Members who have spoken rather than making a further Second Reading speech. That, inevitably, will make my speech shorter than that of the hon. Member for Wrexham.
I pay tribute to my hon. Friend the Member for Rutland and Melton (Mr. Duncan), who broke the tradition of a non-controversial maiden speech by announcing that he was pro-hunting. It seemed that he was challenging my hon. Friend the Member for Basildon (Mr. Amess) in trying to create an identity for his constituency, and I wish him well in calling for a return to Rutland's unitary status.
My hon. Friend the Member for Rutland and Melton rightly paid tribute to our friend, Michael Latham—a man of the highest integrity and a devout man of extremely good nature. Our deliberations will be poorer for his absence.
My hon. Friend made an extremely impressive speech and will make valuable contributions to our financial debates. I noted his remarks about inheritance tax, advanced corporation tax and the refunding rules on VAT, and he made some interesting remarks about the high debt-equity ratios of British companies. Although the Government's influence is limited,' that is an interesting point for us to bear in mind in the wider formation of fiscal and monetary policy.
My hon. Friend the Member for Orpington (Mr. Horam), in his second maiden speech on returning to the House, asked us not to prolong the recession. I hope that we shall do nothing to prolong it. In this short Parliament, we have reduced interest rates, and my hon. Friend called for further reductions. Our policies are designed to achieve low inflation and low interest rates. I note what he said about a low-tax economy attracting foreign investment. One of the good aspects of our economic performance is the extent to which we are a haven for foreign investment. I am sure that that is welcomed by all hon. Members.
I congratulate the hon. Member for Wolverhampton, North-East (Mr. Purchase) on an outstanding maiden speech, in the great traditions of the House. He spoke about his predecessors, to which I add a personal word about Maureen Hicks, whom many Conservative Members regarded as an outstanding Member. We shall miss her, but we wish the hon. Gentleman well.
The hon. Member for Wolverhampton, North-East made a compassionate and compelling speech. He spoke about the plight of pensioners and the infirm, and I note what he said about loans rather than grants from the Department of Social Security. He expressed concern about the restraints on local authorities' housing plans, and spoke with passion about the employment and unemployment problems of some of his constituents. We look forward to hearing further from him.
The hon. Member for Newcastle upon Tyne, East (Mr. Brown), responding to my hon. Friend the Financial Secretary, made particular reference to the size of the trade deficit, and dwelt on inheritance tax. Of course it is of concern that the current account and trade deficit is substantial, but we should not lose sight of the fact that exports have grown strongly, which deserves a welcome. Nor should we forget that the size of the deficit is containable.
The hon. Member's comments on inheritance tax showed more concern for the Labour party's old-fashioned attitudes to the accumulation and maintenance of large amounts of wealth than for the equity of the inheritance tax rules. The Government have received a public mandate and have taken early action significantly to offer relief on inheritance tax, which is extremely welcome, at least among Conservative Members.
My right hon. Friend the Member for Shropshire, North (Mr. Biffen) made a speech that had a familiar refrain for me, and perhaps we shall hear it again. He rightly emphasised the importance of controlling public expenditure—a theme emphasised by my hon. Friend the Member for Bridlington (Mr. Townend).
I wish to assure my right hon. Friend and other Conservative Members that the Government intend to take the tightest control of public expenditure. It is absolutely essential if we are to deliver the prospects of economic regeneration and the electoral promises that we made at the general election that we contain public expenditure this year and in years to come. It is right that my right hon. Friend the Chief Secretary to the Treasury be given the support that was evident among Conservative Members tonight in the discussions that he is having on spending policies.
My hon. Friend the Member for Bridlington welcomed the Bill because its provisions on inheritance tax enable family firms and farms to be passed from one generation to another.
The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) was concerned that further moves to low inflation might mean deflation. I do not think that that necessarily follows. In the past, certainly in the early 1980s, inflation fell while the economy grew. The projections for reducing the underlying rate of inflation will not necessarily impair our prospects for growth. He emphasised the importance that he attaches to manufacturing industry, which I understand.
The hon. Member for Berwick-upon-Tweed (Mr. Beith) complained that this was not a Budget for investment and that he would have preferred an increase in allowances rather than the introduction of the 20p band. That was a central plank of the Chancellor's Budget, which had considerable appeal to people who are within the tax net but are relatively low-paid, and it will bring valuable relief to many people. We have a public mandate for it, and we intend to press ahead with it.
The hon. Member for Berwick-upon-Tweed expressed concern about the Leeds case and about life assurance companies, which both involve, as he put it, aspects of retrospection. That is a contentious matter, to which we shall return in Committee, but we do not take the same line as him. We have a good relationship with the life assurance companies and hope to be able to discuss the content of the Bill's measures, but it is quite proper, given the size of the yield cost of some of the issues at stake, that we take legislative opportunities to put matters beyond question. Confirming past tax regimes is different from the retrospection that visits increased tax rates retrospectively.
The hon. Member for Leeds, West (Mr. Battle) spoke of omissions from the Budget and the Finance Bill, of the housing problems that he perceives in his constituency and of the severity of unemployment. We contest that, because we believe that the Budget and the Bill form part of an overall economic strategy that will create jobs, sustainable growth and sound monetary policies. The evidence, the outlook and surveys of confidence suggest that that is already happening, and we believe that the Bill will encourage it still further.
My hon. Friend the Member for Faversham (Mr. Moate) mentioned stamp duty, which was mentioned at Prime Minister's Question Time earlier today. I am aware that many hon. Members of all parties have been pressing either for an extension of the concession or for it to be continued permanently. At this maiden appearance at the Dispatch Box, I am afraid that I must tell them all firmly that that will not be possible. I have today answered a question from my right hon. Friend the Member for Gloucester (Mr. French) making it clear that the Government will reintroduce the stamp duty rates in August this year.
The yield costs are considerable, and we cannot afford to ignore the impact on the borrowing requirements of Government. The cost of the concession alone is £400 million until August, and the cost of extending that concession for the rest of the financial year would be another £470 million. The cost of the concession for a whole financial year amounts to about £700 million. The total yield from stamp duty on houses amounts to almost £1·4 billion per year. We simply cannot ignore such money in the current equations on public expenditure.
If we wish to meet the public expenditure priorities we have set, we must also consider the fiscal as well as the borrowing side. That is why the temporary stamp duty relief must come to an end. I hope that the certainty that


it will come to an end will act as a further boost in the intervening period to encouraging the purchases and transactions in properties up to the value of £250,000.
The hon. Member for Hornsey and Wood Green (Mrs. Roche) spoke about transport, housing and employment problems in London. I am delighted that my hon. Friend the Minister for Transport in London will home in especially on the problems of transport in London. It is now known that there is a Cabinet sub-committee on London, and for better or worse, I am the Treasury man on it. I will do my bit, short of coming up with substantial sums that it proposes to spend, to try to ensure that there are some useful ideas to try to get better value for money, more efficiency in public expenditure and higher-quality public services in transport, housing and employment for all the people in London.
The hon. Member for Sheffield, Attercliffe (Mr. Betts) said that there were no signs of recovery, and called for a major increase in public investment. There is often a misconception about public investment. Investment means one person spending the money instead of another person spending it. If the Government spend that money, they have to take it from somebody who might be investing it better. The argument that must be deployed—to the House or to the public—for public expenditure, whether one raises it by borrowing or by tax, is that Government will spend it more effectively than those who would otherwise spend and save it.
Conservatives do not take that view. We believe in the plurality and judgment of the private sector. We believe in leaving more resources with people and with companies so that they can set their own priorities. In the words of my right hon. Friend the Chancellor, the Budget and the Finance Bill
mark a step in our constant drive to leave individuals and families with more of what they earn."—[Official Report, 10 March 1992; Vol. 205, c. 761.]
That is our intention, and we will stick to it. It is a pledge that gave us the support of the electorate. It is a Budget for recovery, and the Bill follows it through. I commend the Bill to the House.

Question put, That the Bill be now read a Second time:
The House divided: Ayes 308, Noes 256.

Division No. 20]
[7.43 pm


AYES


Adley, Robert
Bellingham, Henry


Ainsworth, Peter (East Surrey)
Bendall, Vivian


Aitken, Jonathan
Beresford, Sir Paul


Alexander, Richard
Biffen, Rt Hon John


Alison, Rt Hon Michael (Selby)
Blackburn, Dr John G.


Allason, Rupert (Torbay)
Body, Sir Richard


Amess, David
Bonsor, Sir Nicholas


Ancram, Michael
Booth, Hartley


Arbuthnot, James
Boswell, Tim


Arnold, Jacques (Gravesham)
Bottomley, Peter (Eltham)


Arnold, Sir Thomas (Hazel Grv)
Bottomley, Rt Hon Virginia


Ashby, David
Bowis, John


Aspinwall, Jack
Boyson, Rt Hon Sir Rhodes


Atkinson, Peter (Hexham)
Brandreth, Gyles


Baker, Rt Hon K. (Mole Valley)
Brazier, Julian


Baker, Nicholas (Dorset North)
Bright, Graham


Baldry, Tony
Brooke, Rt Hon Peter


Banks, Matthew (Southport)
Brown, M. (Brigg & Cl'thorpes)


Banks, Robert (Harrogate)
Browning, Mrs. Angela


Bates, Michael
Bruce, Ian (S Dorset)


Batiste, Spencer
Budgen, Nicholas





Burns, Simon
Hampson, Dr Keith


Burt, Alistair
Hannam, Sir John


Butler, Peter
Hargreaves, Andrew


Butterfill, John
Harris, David


Carlisle, John (Luton North)
Haselhurst, Alan


Carlisle, Kenneth (Lincoln)
Hawkins, Nicholas


Carrington, Matthew
Hawksley, Warren


Carttiss, Michael
Hayes, Jerry


Cash, William
Heald, Oliver


Chaplin, Mrs Judith
Heath, Rt Hon Sir Edward


Clappison, James
Heathcoat-Amory, David


Clark, Dr Michael (Rochford)
Hendry, Charles


Clarke, Rt Hon Kenneth (Ruclif)
Heseltine, Rt Hon Michael


Clifton-Brown, Geoffrey
Hicks, Robert


Coe, Sebastian
Higgins, Rt Hon Terence L.


Congdon, David
Hill, James (Southampton Test)


Conway, Derek
Hogg, Rt Hon Douglas (G'tham)


Coombs, Anthony (Wyre For'st)
Horam, John


Coombs, Simon (Swindon)
Hordern, Sir Peter


Cope, Rt Hon Sir John
Howard, Rt Hon Michael


Cormack, Patrick
Howarth, Alan (Strat'rd-on-A)


Couchman, James
Howell, Ralph (North Norfolk)


Cran, James
Hughes Robert G. (Harrow W)


Currie, Mrs Edwina (S D'by'ire)
Hunt, Rt Hon David (Wirral W)


Curry, David (Skipton & Ripon)
Hunter, Andrew


Davies, Quentin (Stamford)
Hurd, Rt Hon Douglas


Davis, David (Boothferry)
Jack, Michael


Day, Stephen
Jackson, Robert (Wantage)


Deva, Niranjan
Jenkin, Bernard


Devlin, Tim
Jessel, Toby


Dickens, Geoffrey
Johnson Smith, Sir Geoffrey


Dicks, Terry
Jones, Gwilym (Cardiff N)


Dorrell, Stephen
Jones, Robert B. (W H'f'rdshire)


Douglas-Hamilton, Lord James
Jopling, Rt Hon Michael


Dover, Den
Kellett-Bowman, Dame Elaine


Duncan, Alan
Key, Robert


Duncan-Smith, Iain
Kilfedder, James


Dunn, Bob
King, Rt Hon Tom


Durant, Sir Anthony
Kirkhope, Timothy


Dykes, Hugh
Knapman, Roger


Eggar, Tim
Knight, Mrs Angela (Erewash)


Elletson, Harold
Knight, Greg (Derby N)


Emery, Sir Peter
Knight, Dame Jill (Bir'm E'st'n)


Evans, David (Welwyn Hatfield)
Knox, David


Evans, Jonathan (Brecon)
Kynoch, George (Kincardine)


Evans, Nigel (Ribble Valley)
Lait, Ms Jacqui


Evans, Roger (Monmouth)
Lamont, Rt Hon Norman


Evennett, David
Lang, Rt Hon Ian


Faber, David
Lawrence, Ivan


Fabricant, Michael
Legg, Barry


Fairbairn, Sir Nicholas
Leigh, Edward


Field, Barry (Isle of Wight)
Lennox-Boyd, Hon Mark


Fishburn, John Dudley
Lester, Jim (Broxtowe)


Forsyth, Michael (Stirling)
Lidington, David


Forth, Eric
Lilley, Rt Hon Peter


Fowler, Rt Hon Sir Norman
Lloyd, Peter (Fareham)


Fox, Dr Liam (Woodspring)
Lord, Michael


Fox, Sir Marcus (Shipley)
Luff, Peter


Freeman, Roger
MacGregor, Rt Hon John


French, Douglas
MacKay, Andrew


Fry, Peter
McLoughlin, Patrick


Gale, Roger
McNair-Wilson, Sir Patrick


Gallie, Philip
Madel, David


Gardiner, Sir George
Maitland, Lady Olga


Garel-Jones, Rt Hon Tristan
Malone, Gerald


Garnier, Edward
Mans, Keith


Gill, Christopher
Marland, Paul


Gillan, Ms Cheryl
Marlow, Tony


Goodlad, Rt Hon Alastair
Marshall, John (Hendon S)


Goodson-Wickes, Dr Charles
Marshall, Sir Michael (Arundel)


Gorman, Mrs Teresa
Martin, David (Portsmouth S)


Gorst, John
Mates, Michael


Greenway, Harry (Ealing N)
Mawhinney, Dr Brian


Greenway, John (Ryedale)
Mellor, Rt Hon David


Griffiths, Peter (Portsmouth, N)
Merchant, Piers


Grylls, Sir Michael
Milligan, Stephen


Gummer, Rt Hon John Selwyn
Mills, Iain


Hague, William
Mitchell, Andrew (Gedling)


Hamilton, Rt Hon Archie
Mitchell, Sir David (Hants NW)


Hamilton, Neil (Tatton)
Moate, Roger






Molyneaux, Rt Hon James
Spicer, Michael (S Worcs)


Monro, Sir Hector
Spink, Dr Robert


Montgomery, Sir Fergus
Spring, Richard


Moss, Malcolm
Sproat, Iain


Nelson, Anthony
Stanley, Rt Hon Sir John


Neubert, Sir Michael
Steen, Anthony


Newton, Rt Hon Tony
Stephen, Michael


Nicholls, Patrick
Stern, Michael


Nicholson, David (Taunton)
Stewart, Allan


Nicholson, Emma (Devon West)
Streeter, Gary


Norris, Steve
Sumberg, David


Onslow, Rt Hon Cranley
Sweeney, Walter


Oppenheim, Phillip
Sykes, John


Ottaway, Richard
Tapsell, Sir Peter


Page, Richard
Taylor, Ian (Esher)


Paice, James
Taylor, John M. (Solihull)


Patnick, Irvine
Taylor, Sir Teddy (Southend, E)


Patten, Rt Hon John
Temple-Morris, Peter


Pattie, Rt Hon Sir Geoffrey
Thomason, Roy


Pawsey, James
Thompson, Patrick (Norwich N)


Peacock, Mrs Elizabeth
Thornton, Malcolm


Pickles, Eric
Thurnham, Peter


Porter, Barry (Wirral S)
Townend, John (Bridlington)


Porter, David (Waveney)
Townsend, Cyril D. (Bexl'yh'th)


Portillo, Rt Hon Michael
Tracey, Richard


Powell, William (Corby)
Tredinnick, David


Redwood, John
Trend, Michael


Renton, Rt Hon Tim
Trimble, David


Richards, Rod
Trotter, Neville


Riddick, Graham
Twinn, Dr Ian


Rifkind, Rt Hon. Malcolm
Vaughan, Sir Gerard


Robathan, Andrew
Viggers, Peter


Roberts, Rt Hon Sir Wyn
Waldegrave, Rt Hon William


Robertson, Raymond (Ab'd'n S)
Walden, George


Robinson, Mark (Somerton)
Walker, Bill (N Tayside)


Roe, Mrs Marion (Broxbourne)
Waller, Gary


Rowe, Andrew (Mid Kent)
Wardle, Charles (Bexhiil)


Rumbold, Rt Hon Dame Angela
Watts, John


Ryder, Rt Hon Richard
Wells, Bowen


Sackville, Tom
Wheeler, Sir John


Sainsbury, Rt Hon Tim
Whitney, Ray


Scott, Rt Hon Nicholas
Whittingdale, John


Shaw, David (Dover)
Widdecombe, Ann


Shaw, Sir Giles (Pudsey)
Willetts, David


Shephard, Rt Hon Gillian
Wilshire, David


Shepherd, Colin (Hereford)
Winterton, Mrs Ann (Congleton)


Shepherd, Richard (Aldridge)
Winterton, Nicholas (Macc'f'ld)


Sims, Roger
Wolfson, Mark


Skeet, Sir Trevor
Wood, Timothy


Smith, Tim (Beaconsfield)
Yeo, Tim


Smyth, Rev Martin (Belfast S)
Young, Sir George (Acton)


Soames, Nicholas



Speed, Keith
Tellers for the Ayes:


Spencer, Sir Derek
Mr. David Lightbown and


Spicer, Sir James (W Dorset)
Mr. Sydney Chapman.


NOES


Abbott, Ms Diane
Boateng, Paul


Adams, Mrs Irene
Boyce, Jimmy


Ainger, Nicholas
Bradley, Keith


Ainsworth, Robert (Cov'try NE)
Brazier, Julian


Alton, David
Brown, Gordon (Dunfermline E)


Anderson, Donald (Swansea E)
Brown, N. (N'c'tle upon Tyne E)


Anderson, Ms Janet (Ros'dale)
Bruce, Malcolm (Gordon)


Armstrong, Hilary
Burden, Richard


Ashton, Joe
Byers, Stephen


Austin-Walker, John
Caborn, Richard


Barnes, Harry
Callaghan, Jim


Battle, John
Campbell, Ms Anne (C'bridge)


Bayley, Hugh
Campbell, Menzies (Fife NE)


Beckett, Margaret
Campbell, Ronald (Blyth V)


Beith, A. J.
Campbell-Savours, D. N


Bell, Stuart
Canavan, Dennis


Benn, Rt Hon Tony
Cann, James


Bennett, Andrew F.
Chisholm, Malcolm


Benton, Joe
Clapham, Michael


Bermingham, Gerald
Clark, Dr David (South Shields)


Berry, Roger
Clarke, Eric (Midlothian)


Betts, Clive
Clarke, Tom (Monklands W)


Blair, Tony
Clelland, David





Clwyd, Mrs Ann
Ingram, Adam


Coffey, Ms Ann
Jackson, Ms Glenda (H'stead)


Cohen, Harry
Jackson, Ms Helen (Shef'ld, H)


Connarty, Michael
Jamieson, David


Cook, Frank (Stockton N)
Janner, Greville


Cook, Robin (Livingston)
Jones, Barry (Alyn and D'side)


Corbyn, Jeremy
Jones, Ieuan (Ynys Môn)


Corston, Ms Jean
Jones, Jon Owen (Cardiff C)


Cousins, Jim
Jones, Ms Lynne (B'ham S O)


Cryer, Bob
Jones, Martyn (Clwyd, SW)


Cummings, John
Jones, Nigel (Cheltenham)


Cunliffe, Lawrence
Jowell, Ms Tessa


Cunningham, Jim (Covy SE)
Kaufman, Rt Hon Gerald


Cunningham, Dr John (C'p'l'nd)
Keen, Alan


Dalyell, Tam
Kennedy, Charles (Ross, C & S)


Darling, Alistair
Kennedy, Ms Jane (L'p'l Br'g'n)


Davidson, Ian
Khabra, Piara


Davies, Bryan (Oldham C'tral)
Kilfoyle, Peter


Davies, Rt Hon Denzil (Llanelli)
Kirkwood, Archy


Davies, Ron (Caerphilly)
Leighton, Ron


Davis, Terry (B'ham, H'dge H'I)
Lestor, Joan (Eccles)


Denham, John
Lewis, Terry


Dewar, Donald
Livingstone, Ken


Dixon, Don
Lloyd, Tony (Stretford)


Dobson, Frank
Llwyd, Elfyn


Donohoe, Brian
Loyden, Eddie


Dowd, Jim
Lynne, Ms Liz


Dunnachie, Jimmy
McAllion, John


Dunwoody, Mrs Gwyneth
McAvoy, Thomas


Eagle, Ms Angela
McCartney, Ian


Enright, Derek
MacDonald, Calum


Etherington, William
McFall, John


Evans, John (St Helens N)
McKelvey, William


Fatchett, Derek
Mackinlay, Andrew


Field, Frank (Birkenhead)
McLeish, Henry


Fisher, Mark
Maclennan, Robert


Flynn, Paul
McMaster, Gordon


Foster, Derek (B'p Auckland)
McNamara, Kevin


Foster, Donald (Bath)
Madden, Max


Foulkes, George
Mahon, Alice


Fraser, John
Mandelson, Peter


Fyfe, Maria
Marek, Dr John


Galbraith, Sam
Marshall, David (Shettleston)


Galloway, George
Marshall, Jim (Leicester, S)


Gapes, Michael
Martlew, Eric


Garrett, John
Meacher, Michael


George, Bruce
Michael, Alun


Gerrard, Neil
Michie, Bill (Sheffield Heeley)


Gilbert, Rt Hon Dr John
Michie, Mrs Ray (Argyll Bute)


Godman, Dr Norman A.
Milburn, Alan


Godsiff, Roger
Miller, Andrew


Golding, Mrs Llin
Mitchell, Austin (Gt Grimsby)


Gordon, Mildred
Moonie, Dr Lewis


Grant, Bernie (Tottenham)
Morgan, Rhodri


Griffiths, Nigel (Edinburgh S)
Morley, Elliot


Griffiths, Win (Bridgend)
Morris, Rt Hon A. (Wy'nshawe)


Grocott, Bruce
Morris, Estelle (B'ham Yardley)


Gunnell, John
Morris, Rt Hon J. (Aberavon)


Hain, Peter
Mowlam, Marjorie


Hall, Mike
Mudie, George


Hanson, David
Murphy, Paul


Harman, Ms Harriet
Oakes, Rt Hon Gordon


Harvey, Nick
O'Brien, Michael (N W'kshire)


Hattersley, Rt Hon Roy
O'Brien, William (Normanton)


Henderson, Doug
O'Hara, Edward


Hepple, John
Olner, William


Hill, Keith (Streatham)
Orme, Rt Hon Stanley


Hinchliffe, David
Patchett, Terry


Hoey, Kate
Pickthall, Colin


Hogg, Norman (Cumbernauld)
Pike, Peter L.


Home Robertson, John
Pope, Greg


Hood, Jimmy
Powell, Ray (Ogmore)


Hoon, Geoff
Prentice, Ms Bridget (Lew'm E)


Howarth, George (Knowsley N)
Prentice, Gordon (Pendle)


Howells, Dr. Kim (Pontypridd)
Primarolo, Dawn


Hoyle, Doug
Purchase, Ken


Hughes, Kevin (Doncaster N)
Quin, Ms Joyce


Hughes, Robert (Aberdeen N)
Radice, Giles


Hughes, Roy (Newport E)
Randall, Stuart


Hutton, John
Raynsford, Nick






Reid, Dr John
Stevenson, George


Richardson, Jo
Stott, Roger


Robertson, George (Hamilton)
Strang, Gavin


Robinson, Geoffrey (Co'try NW)
Straw, Jack


Roche, Ms Barbara
Tipping, Paddy


Rogers, Allan
Turner, Dennis


Rooker, Jeff
Tyler, Paul


Rooney, Terry
Walker, Rt Hon Harold (Don' C)


Ross, Ernie (Dundee W)
Walley, Joan


Rowlands, Ted
Warden, Gareth (Gower)


Salmond, Alex
Wareing, Robert N


Sedgemore, Brian
Watson, Mike


Sheerman, Barry
Welsh, Andrew


Sheldon, Rt Hon Robert
Wicks, Malcolm


Shore, Rt Hon Peter
Williams, Rt Hon Alan (Sw'n W)


Simpson, Alan
Williams, Alan W (Carmarthen)


Skinner, Dennis
Wilson, Brian


Smith, Andrew (Oxford E)
Winnick, David


Smith, C. (Isl'ton S & F'sbury)
Wise, Audrey


Smith, Rt Hon John (M'kl'ds E)
Worthington, Tony


Smith, Llew (Blaenau Gwent)
Wray, Jimmy


Snape, Peter
Wright, Tony


Soley, Clive
Young, David (Bolton SE)


Spearing, Nigel



Spellar, John
Tellers for the Noes:


Squire, Rachel (Dunfermline W)
Mr. Ken Eastham and


Steel, Rt Hon Sir David
Mr. Eric Illsley.


Steinberg, Gerry

Question accordingly agreed to.

Motion made, and Question proposed,

That Clauses 19 and 20 be committed to a Committee of the whole House;
That the remainder of the Bill be committed to a Standing Committee;
That, when the provisions of the Bill considered, respectively, by the Committee of the whole House and by the Standing Committee have been reported to the House, the Bill be proceeded with as if the Bill had been reported as a whole to the House from the Standing Committee.—[Mr. Dorrell.]

Mr. Peter Bottomley: I rise briefly to put the arguments against the detail in the motion. For clauses 19 and 20 to be the only clauses to be considered on the Floor of the House rather diminishes the role that this House should have in full Committee on the Floor when considering the details of clause 52.
I will not make a speech about the merits of the issue. The House very infrequently goes in for retroactive legislation. As Front-Bench Members have said, that is normally done for the benefit of taxpayers. In this case, the proposals in clause 52 would mean that, whatever the courts decided in a judicial review case, Parliament would have to do what the Government say that it should have done two or three times before.
We should have a debate on clause 52 on the Floor of the House of Commons. If I do not succeed in blocking this committal motion by shaking my head vigorously when the Question is put, I hope that there will be a full debate on Report. I cannot rely on the Committee going any further than it did a year or so ago, when the issue was last considered.
Parliament should not believe that the Government have got away with it. In effect, they are going for hybridity, although the way in which the clause has been drawn would probably avoid it being technically hybrid. The issue will certainly arise when a building society takes the issue to the European courts, something that it can do only when all the domestic remedies have been exhausted.
As the House will recall, in this case the domestic remedies include the Government three times reversing the law as determined by the courts: twice after the courts determined that the Inland Revenue had got it wrong and once in advance of a likely decision.
The justification for the sledgehammer of clause 52 is that building societies paid £15,000 million in taxation over four years. I agree with my hon. Friend the Financial Secretary to the Treasury that £15,000 million is too much to have hanging at risk.
As the Government consider their stance for Standing Committee and for the Committee of the whole House, I hope that they will find a way to limit the affect of clause 52 so that it deals with only 99 per cent. of £15,000 million and leaves the claim to £57 million including interest to be determined either by the courts in a judicial review or by negotiations with the Government. I ask the House to support my contention that, one way or another, clause 52 should be aired in a full debate on the Floor of the House.

Question put and agreed to.

Non-Domestic Rating Bill

Considered in Committee

[MR. GEOFFREY LOFTHOUSE in the Chair]

Clause 1 ordered to stand part of the Bill.

Clause 2

INCREASING NON-DOMESTIC RATES

8 pm

Mr. Nigel Jones: I beg to move amendment No. 1, in page 1, line 21, leave out 'X is 100', and insert 'X is 95'.

The First Deputy Chairman of Ways and Means: With this it will be convenient to consider amendment No. 2, in page 1, line 27, leave out '100', and insert '95'.

Mr. Jones: I move this amendment because the recession is continuing for most businesses and I want to push the Government a little further in helping businesses to survive the recession. I welcome the main thrust of the Bill. The amendment would increase help for people on transitional relief. The Government's calculations will lead to a real-terms increase of zero this year. I want to bring about a small cut in businesses' rates this year because increases in uniform business rate bills have recently been very large for many businesses, and have tipped many small businesses over the edge into bankruptcy. A small decrease in their bills this year could help some companies to survive.
Administration of the UBBR has been chaotic in terms of the valuation process, appeals and administration of the transitional relief scheme, which has led to great anxiety and frustration among many businesses, particularly small businesses, at a very stressful time. With this amendment, I ask the Government to help those businesses to survive the recession.
If the Government are ever to provide extra help in the business rate arena, now is the time to do it, when many people think that we are still in recession. Although the Government have said before, during and after the election that they believe that we are coming out of recession, there is much evidence to show that the recession is continuing for most businesses and that a cut in the business rate would help. That evidence is that unemployment is still rising at an underlying trend of more than 30,000 a month, and that bankruptcies, mostly of unincorporated businesses, continue to rise. In the first three months of this year, there were 8,604 bankruptcies —an increase of 67 per cent. on the first quarter of last year.
Smaller businesses are going bust as fast as ever, and the Government's talk of recovery must mean absolutely nothing to such firms. The Government can send a message to small firms considering going into liquidation to keep going because help is on its way. Liquidations of larger companies are also increasing, although not quite so fast. In the first three months of this year, there were 5,835 such liquidations—an increase of 17 per cent. on the first quarter of last year.
There is evidence that the recession is still with us. I press the Minister to ask the Treasury for more money to help small businesses through this difficult period.

The Minister for Local Government and Inner Cities (Mr. John Redwood): The Government are producing a generous package through the proposals that were announced in the Budget and are confirmed in the legislation. Our proposals will cost £400 million this year, £520 million the following year, and £325 million in the third year—a bumper package of £1,250 million or thereabouts for England as a result of the rate reductions. [Interruption.] Hon. Members may scoff, but that is extremely good news for businesses—very welcome news indeed. I should have thought that hon. Members would welcome it rather than cavil and laugh about those large sums of money which will give direct reductions in bills.

Mr. Malcolm Bruce: Will the Minister give way?

Mr. Redwood: I shall give way when I am ready to do so, but I have not finished dealing with the points that have been raised from a sedentary position and in a rather churlish manner.
The Liberal proposals for site value rating would be extremely bad news for business, assigning hypothetical values to sites on the basis that they could be redeveloped. What kind of recipe for small shopkeepers would that be? What would that do to the businesses for Cheltenham? The hon. Member for Cheltenham (Mr. Jones) should do his homework before he pooh-poohs the excellent ideas in our legislation and before he recommends to the House the half-baked scheme that the Liberal Democrats have been talking about outside the House and have mentioned on Second Reading. [Interruption.] I am dealing with the amendment.
I cannot understand why the hon. Gentleman thinks that those who are losing from the revaluations should be given more favourable treatment than all those who are already paying at the full amount required by the valuations that are in practice. But that, of course, is what the Liberal Democrat amendment would do. It would positively discriminate in favour of those who, through transition, are having to increase their bills because of the revaluation, against those who are already paying the full amount required by the revaluation.
Of course, some of the revaluation increases were large because there was a very long gap between one valuation and another. Those anomalies are being corrected and, as I pointed out on Second Reading, some businesses in transition, being protected by the legislation, if passed, as well as by the transitional relief, may never have to pay the full amounts required by the 1990 valuation, because we shall have regular valuations from now on, and any decreases in value will be reflected in the subsequent valuation if that is true at that date.
I hope that the House will send the strong message to business today that it wants fast passage of the legislation to give the large amount of rebate to businesses which need relief from their rates. The costing of the hon. Gentleman's proposal, skewing things in favour of those under transitional arrangements, would be an additional £120 million in the current year. That, with the costing of the next item, would have to be added to the big Liberal Democrat plans to raise public borrowing, which would be likely to raise interest rates and other business costs.

Mr. Malcolm Bruce: The Minister talks about a bumper package. Has he forgotten that the Government increased VAT by 2·5 per cent. as part of the incompetence of the


poll tax? That is yielding a substantial amount which could be redirected to businesses, many of which are suffering from a loss of markets because of the inflationary effect of the VAT increase. Have not the Government added to the recession by their own measures, in raising revenue which they should plough back in a simple and direct way which would reduce business costs?

Mr. Redwood: I have never heard the hon. Member for Gordon (Mr. Bruce) or his party argue for lower local authority expenditure. Had I done so, I should have been more sympathetic to his interventions, but it is always spend, spend and more spend. As we know, that requires taxation revenue to pay for it. We decided to reduce community charge bills across the country because people thought that they were high. We did that by cross-financing, out of an increase in VAT, which was a perfectly reasonable way of doing it.

Mr. John Bowis: Will my hon. Friend the Minister press the hon. Member for Gordon (Mr. Bruce) further to see where the money currently coming from VAT would otherwise come from to support businesses that the hon. Gentleman's party seeks to support? The only way to do that would be to reimpose that amount on every community charge payer in the country. If that is the case, we should be told.

Mr. Redwood: My hon. Friend has made an extremely powerful point. Unless they make spending cuts, the Liberals would have to raise the tax from somewhere, or raise public borrowing.

Mr. Nigel Jones: indicated assent.

Mr. Redwood: I see Liberal Members nodding in assent that they would raise public borrowing. Do they know what that would do to market sentiment, interest rates and businesses? The Government have systematically reduced interest rates in recent months. We should not want to see that upset by unreasonable increases in public borrowing wished upon us by the Liberal party.

The Chairman: Order. Before we go any further, I remind hon. Members that the Bill deals with non-domestic rates. I hope that hon. Members will bear that in mind.

Mr. Redwood: I accept your admonition, Mr. Lofthouse. I urge the House to reject the amendments.

Mr. Don Foster: I do not know whether the Minister did it deliberately, but he certainly misrepresented the comments made by my hon. Friend the Member for Cheltenham (Mr. Jones) when he moved the amendment. My hon. Friend made it clear that we welcome the moves that the Government are making to give support to businesses and in particular to small businesses. My hon. Friend's amendment seeks to increase further the level of support that we believe needs to be given to small businesses across the country especially with the continuation of the recession brought about largely by measures taken by the Government.
In particular, we are keen to see additional support given to several areas of Britain which are heavily reliant on the small business sector. For example, as a result of the revaluation, my constituency had the second highest

increase in business rates of all the English districts—13·3 per cent. compared with the English average of about 8·1 per cent. Such increases have had a significant effect on the level of the uniform business rate, which in turn affects the number of job losses. According to the figures produced by the House of Commons Library, unemployment in my constituency, where the UBR has increased significantly, rose by 113 per cent. between 1990 and 1992.
The Minister asked where the money will come from. Perhaps he will bear in mind the significant cost of unemployment. I hope that he will welcome the proposal in my hon. Friend's amendment to give additional support to small businesses. After all, his party originally claimed to be the party which supported small businesses. On that basis, I hope that the Minister will accept the amendment.

Mr. William O'Brien: As you rightly pointed out, Mr. Lofthouse, we are discussing amendments to the Local Government Finance Act 1988. The Opposition, as well as agencies and pressure groups outside the House, warned in 1988 that the Act would not benefit people generally in Britain, and in particular would not benefit small businesses.
The parts of the Act which referred to domestic ratepayers, subsequently poll tax payers, have been proved to be full of faults. After one year of operation in England and Wales, those parts of the Act were withdrawn. We are now dealing with non-domestic rating. The foolishness of the Government in introducing a national tax for businesses has been demonstrated beyond any shadow of doubt.
The amendments seek to make available additional money to help small businesses. I suggest that, if additional money is to be provided, it would be better distributed by allowing people who have difficulty in paying not to pay at all. Some form of rebate scheme should he available to help people over difficult periods, as the hon. Member for Cheltenham (Mr. Jones) said. But any additional finance should be channelled to the people in greatest need. If money is available, we should consider a scheme to allow those who are having difficulty paying not to pay. Instead of a blanket cover, we should consider the principle that if people cannot pay they should not have to.
I support the Government's moves to help small businesses, but I ask Liberal Members to consider carefully that we ought to press the Government to make resources available to allow people having difficulty in paying the business rate not to do so. That would sustain small businesses much more than the proposal in the amendment. I cannot support the amendment. If the Government are considering making further money available, they should use it to help people who cannot pay. If people are having difficulty meeting the high charges, they should not pay.
Revaluations were carried out mainly when property costs were high. That is the real problem facing many small businesses. I suggest that the Liberals consider carefully that any additional money should be placed where the need is greatest. People should not pay rates if they cannot pay rates.

Mr. Bowis: I am drawn to intervene by the preposterous proposal from the Liberal Benches that the level of value added tax should be restored, thereby placing a burden on


the community charge payer or, if any other way of raising the money was used, on the taxpayer. [Interruption.] That was the gist of the intervention of the hon. Member for Gordon (Mr. Bruce). My hon. Friend the Minister replied, but we had no specific response from the Liberal party.
I speak for many community charge payers. I know that the Bill deals with non-domestic rates, but in passing I would mention that the £140 was of great value.

Mr. Chairman: Order. I should not bother in passing. I have already ruled on that. Stick to non-domestic rates.

Mr. Bowis: Then I shall pass on to the benefits that the Bill will produce. I want both the community charge payer and the non-domestic ratepayer to enjoy benefits. I represent an area of London which had to contribute considerably to the less well-off regions of Britain through the UBR system. Like the Opposition Front-Bench spokesman, the hon. Member for Normanton (Mr. O'Brien), I welcome the Government's proposal to bring relief to business ratepayers. This is the way to do it. I am surprised that Liberal Members seek to delay the measure and do not go along with it wholeheartedly.

Mr. Rhodri Morgan: I hope that the hon. Gentleman understands the problem that Opposition Members have with his speech and that of the Minister. We do not disagree with the principle that the Government got rating and its replacement hopelessly wrong in the Local Government Finance Act 1988. We have no problem with that. We said that it was wrong at the time. We said that events and time would prove the Government wrong. That was obviously true on the domestic side and on the non-domestic side.
We also have no problem with the principle of occasionally making public money available by way of largesse. The principles according to which the money goes to a certain body of people should be clearly laid out. The problem is for the Government to say why and when they give public money to other people. The hon. Gentleman cannot simply get away with it by saying, "Oh, well, it was necessary to win the election."

Mr. Bowis: There is a slight difference of opinion between the second Labour Bench and the Labour Front Bench. I shall not go into that. I was merely agreeing with the Labour Front-Bench spokesman when he agreed with my hon. Friend the Minister that the Government's proposal was the way forward.
I ask the hon. Member for Cheltenham (Mr. Jones), who fairly expressed anxiety for small businesses, to tell the House what benefit would come to small businesses in London and the south-east from his party's policies to raise fuel taxes and introduce a land value tax which would decimate businesses and especially small businesses in my part of London.

Mr. Nigel Jones: In response to the hon. Member for Battersea (Mr. Bowis), the benefit would be 5 per cent. off the rate bills for small businesses. That is what is so clean, simple and immediate about the amendment. I understand that the hon. Gentleman will vote against that if we press for a Division.
The Minister said that we were talking about extra borrowing, and I nodded. That is what we are talking about and I see nothing wrong with extra temporary borrowing to keep companies in business. Such tax cuts would not undermine Government finances in the long

term. They could improve them if, by cutting taxes now, more businesses and enterprises survived and more people remained in useful, tax-paying employment.
These measures can be afforded in the short term and could strengthen the Government's finances in time. The Bill adopts the principle of funding temporary business tax cuts by temporary borrowing. As the Government have already accepted that principle, they can have no problem with the principles of our amendment. They may have a problem in finding the money to do it. It could be argued that the Government's finances cannot afford the amendment, but we must take up that debate with the Chancellor of the Exchequer, whose present estimate of public sector borrowing for this year is £28 billion. Is it in fact worse than that?
I found the Minister's response disappointing and unsatisfactory, and I wish to press the amendment to a Division.

Question put, That the amendment be made:—

The Committee divided: Ayes 22, Noes 168.

Division No. 21]
[8.21 pm


AYES


Alton, David
Mackinlay, Andrew


Beith, A. J.
Maclennan, Robert


Bruce, Malcolm (Gordon)
Madden, Max


Campbell, Menzies (Fife NE)
Mahon, Alice


Cryer, Bob
Michie, Mrs Ray (Argyll Bute)


Cummings, John
Skinner, Dennis


Foster, Donald (Bath)
Steel, Rt Hon Sir David


Jones, leuan (Ynys Môn)
Tyler, Paul


Jones, Nigel (Cheltenham)
Wicks, Malcolm


Kennedy, Charles (Ross, C & S)



Llwyd, Elfyn
Tellers for the Ayes:


Loyden, Eddie
Mr. Archy Kirkwood and


Lynne, Ms Liz
Mr. Simon Hughes.


NOES


Aitken, Jonathan
Cope, Rt Hon Sir John


Alexander, Richard
Couchman, James


Alison, Rt Hon Michael (Selby)
Currie, Mrs Edwina (S D'by'ire)


Amess, David
Davis, David (Boothferry)


Ancram, Michael
Day, Stephen


Arbuthnot, James
Deva, Niranjan


Arnold, Jacques (Gravesham)
Devlin, Tim


Ashby, David
Douglas-Hamilton, Lord James


Atkinson, Peter (Hexham)
Duncan, Alan


Baker, Nicholas (Dorset North)
Duncan-Smith, Iain


Baldry, Tony
Durant, Sir Anthony


Bates, Michael
Dykes, Hugh


Beresford, Sir Paul
Elletson, Harold


Blackburn, Dr John G.
Emery, Sir Peter


Body, Sir Richard
Evans, David (Welwyn Hatfield)


Booth, Hartley
Evans, Jonathan (Brecon)


Boswell, Tim
Evans, Nigel (Ribble Valley)


Bottomley, Peter (Eltham)
Evans, Roger (Monmouth)


Bowis, John
Faber, David


Brandreth, Gyles
Fabricant, Michael


Brazier, Julian
Fairbairn, Sir Nicholas


Bright, Graham
Field, Barry (Isle of Wight)


Brooke, Rt Hon Peter
Fishburn, John Dudley


Browning, Mrs. Angela
Forsyth, Michael (Stirling)


Burt, Alistair
Forth, Eric


Butler, Peter
Fox, Dr Liam (Woodspring)


Butterfill, John
Fox, Sir Marcus (Shipley)


Carlisle, John (Luton North)
Freeman, Roger


Carrington, Matthew
French, Douglas


Carttiss, Michael
Gallie, Philip


Chaplin, Mrs Judith
Gardiner, Sir George


Chapman, Sydney
Gillan, Ms Cheryl


Clappison, James
Goodson-Wickes, Dr Charles


Clifton-Brown, Geoffrey
Gorman, Mrs Teresa


Coe, Sebastian
Gorst, John


Colvin, Michael
Greenway, John (Ryedale)


Congdon, David
Griffiths, Peter (Portsmouth, N)


Coombs, Simon (Swindon)
Hague, William






Hargreaves, Andrew
Paice, James


Harris, David
Patnick, Irvine


Hawkins, Nicholas
Pattie, Rt Hon Sir Geoffrey


Hawksley, Warren
Peacock, Mrs Elizabeth


Heald, Oliver
Pickles, Eric


Heathcoat-Amory, David
Porter, David (Waveney)


Hendry, Charles
Powell, William (Corby)


Hill, James (Southampton Test)
Redwood, John


Horam, John
Richards, Rod


Hordern, Sir Peter
Riddick, Graham


Howell, Ralph (North Norfolk)
Roberts, Rt Hon Sir Wyn


Hunter, Andrew
Robertson, Raymond (Ab'd'n S)


Jenkin, Bernard
Robinson, Mark (Somerton)


Jessel, Toby
Rowe, Andrew (Mid Kent)


Jones, Gwilym (Cardiff N)
Ryder, Rt Hon Richard


Jones, Robert B. (W H'f'rdshire)
Sackville, Tom


Jopling, Rt Hon Michael
Shaw, David (Dover)


Kellett-Bowman, Dame Elaine
Shepherd, Colin (Hereford)


Kilfedder, James
Smith, Tim (Beaconsfield)


Kirkhope, Timothy
Speed, Keith


Knight, Mrs Angela (Erewash)
Spencer, Sir Derek


Knight, Greg (Derby N)
Spink, Dr Robert


Kynoch, George (Kincardine)
Sproat, Iain


Lait, Ms Jacqui
Steen, Anthony


Legg, Barry
Stephen, Michael


Lidington, David
Stern, Michael


Lightbown, David
Streeter, Gary


Lilley, Rt Hon Peter
Sweeney, Walter


Luff, Peter
Sykes, John


MacKay, Andrew
Taylor, Ian (Esher)


Maitland, Lady Olga
Thomason, Roy


Malone, Gerald
Thurnham, Peter


Mans, Keith
Tredinnick, David


Marlow, Tony
Trend, Michael


Marshall, Sir Michael (Arundel)
Twinn, Dr Ian


Martin, David (Portsmouth S)
Waller, Gary


Mawhinney, Dr Brian
Wardle, Charles (Bexhill)


Merchant, Piers
Wells, Bowen


Milligan, Stephen
Whittingdale, John


Mitchell, Andrew (Gedling)
Widdecombe, Ann


Moate, Roger
Willetts, David


Monro, Sir Hector
Winterton, Mrs Ann (Congleton)


Moss, Malcolm
Winterton, Nicholas (Macc'f'ld)


Neubert, Sir Michael
Yeo, Tim


Newton, Rt Hon Tony



Oppenheim, Phillip
Tellers for the Noes:


Ottaway, Richard
Mr. Tim Wood and


Page, Richard
Mr. Robert G. Hughes.

Amendment accordingly negatived.

Clause 2 ordered to stand part of the Bill.

Clause 3

DECREASING NON-DOMESTIC RATES

Mr. Nigel Jones: I beg to move amendment No. 3, in page 2, line 29, after first 'in', insert '1992 and'.
The amendment relates to other types of businesses which have benefited from the uniform business rate. The Government's clause speeds up the reductions in rate bills for those who will benefit and ensures that, by 1993–94, such business ratepayers will obtain their full reductions. Our amendment will give them all those gains this year. We support what the Government have done, but we would like to push them a bit further.

Mr. Redwood: I urge the House to reject the amendment as it is not well targeted and it is an expensive proposal. It will cost £475 million in the current year, and the hon. Gentleman has not said where that money might come from, whether he is proposing some compensating

tax increase or yet more borrowing with possible dangers for interest rates, which would damage the businesses that he is setting out to help.
I wonder whether the hon. Gentleman has reconsidered his remarks on Second Reading when he said:
It is possible that the Government's measure is more effectively targeted"—[Official Report, 19 May 1992; Vol. 208, c. 216.]
than the Liberal one. I urge the hon. Gentleman to reaffirm that. Our measures are exceptionally well targeted to deal with the problems that arose from revaluation and to add to the transitional relief that we set out previously.
I urge the House to support the Bill as unamended and, thus, to reject the amendment.

Amendment negatived.

Clause 3 ordered to stand part of the Bill.

Clauses 4 to 10 ordered to stand part of the Bill.

Bill reported, without amendment.

Motion made, and Question proposed, That the Bill be now read the Third time.

Mr. William O'Brien: I remind hon. Members that the Bill is necessary for the Government to bring about the proposals made in the Budget to amend the Local Government Finance Act 1988 as it relates to transitional arrangements governing increases and decreases in non-domestic rate bills. Clause 2 limits the increases in rates to business rate payers to no more than the rate of inflation, which, in the current year, is 4·2 per cent.
Any action by the Government to amend and improve the iniquitous 1988 Act and to improve the quality of life of those people affected by it will always receive the support of the Labour party. That was made clear by my hon. Friend the Member for Sheffield, Brightside (Mr. Blunkett) on Second Reading. Sadly, the principle of clause 2 does not apply to poll tax payers in general, because it covers non-domestic properties. The Bill, with its 10 clauses, significantly amends the 1988 Act, but it is a pity—I refer to the rebate scheme—that it does not consider the abolition of the 20 per cent. rule for poll tax payers.
We are witnessing, as we have witnessed in the past, with the abolition of that part of the 1988 Act which referred to poll tax payers, the failure of the Government and of the Conservative party to provide a reasonable system of local government finance. We are reminded that taxpayers are paying dearly for that Act. I remember clearly how the current Secretary of State for the Environment fought hard in Committee and in the House, supported by the Minister of State and other Tory Members, to introduce that Act and to implement it. We are now witnessing the results of that bad legislation, because this Bill has had to be introduced to amend it.
The Government's proposals—in 1990, following the passage of the Local Government Finance Act 1988—were doomed to failure from the start. My hon. Friends and I, along with the present President of the Board of Trade, said that the whole scheme would fail, and tonight we are seeing some of the results of that failure.
We must now give urgent consideration to the whole issue of compensating local authorities, because the cost to them of re-billing will be very expensive indeed. The Department of the Environment has suggested that the


re-billing cost per unit will be about 85p per transaction. On Second Reading, the Under-Secretary of State promised that the national non-domestic rate
pool will be fully compensated for any reduction in the rate yield that is due to the Bill. Local authorities will be allowed to net off reasonable costs of re-billing from NNDR payments. We shall look carefully at any evidence from authorities that NNDR payments in the first month of the year have not kept pace with the profile of payments to the Department set at the beginning of the year, and we shall consider adjustments if they prove necessary."—[Official Report, 19 May 1992; Vol. 208, c. 226.]
There is clear evidence that there has been delay in payments in the first month of the year by small businesses. That has happened in anticipation of what would result from the announcement in the Budget. It was natural that people would react in that way, having been told that there would be a change in the rate demand. In turn, local authorities face a cash flow problem as a result of rates not being paid in the first month of the year as well as in May. I trust that the Minister accepts that the plight of local authorities, because of their cash flow difficulties, must be considered. That state of affairs has come about because of the announced rebate scheme.
Wakefield district council has made a careful cost-per-unit study for re-billing purposes. It has estimated that the cost will be nearer £2 per unit than the 85p suggested by the Department of the Environment. The costing done by Wakefield took every detail of the exercise into account.
The Minister must also accept that, when a relatively small number of bills must be redistributed, as will happen in Wakefield's case—the figure will be about 2,000—there will be no post office reduction for delivery charges. The formula suggested by the Department in discussions with local authority associations took into account a benefit for local authorities resulting from a post office discount for additional billing. That is another factor pointing to the way in which the Department of the Environment has got its re-billing average costs wrong.
Because of the way in which the Government have handled the whole rebate issue, many local authorities, including Wakefield, are finding that, in addition to going through the process of printing and issuing the original bill, they must add to the bill an amendment covering the rebate, explaining how it came about. That must be done by Government directive. Because it is not necessarily possible to include all that information on the one bill, additional work has had to be undertaken by local authorities, much of it involving manual work. That additional activity has been carefully costed by Wakefield's finance department.
I hope that the Minister will look carefully at the additional problems faced by local authorities. It is clear that the formula originally put out by the Department is inadequate in relation to the information that local authorities are having to provide as part of the re-billing procedure. There is every reason for the Department to re-examine the matter—

Mr. Redwood: indicated assent.

Mr. O'Brien: —and I gather that the Minister agrees that further examination is required.

Mr. Redwood: It might help if I tell the hon. Gentleman at this juncture in the debate that we are consulting the local authority associations on our estimates of the re-billing cost. They were based on community charge

re-billing costs, about which we knew. We shall, of course, also take into account any representations that the hon. Gentleman may make, because we want to arrive at a fair and sensible figure.

Mr. O'Brien: The Minister will have before him the figures that have been supplied to me by Wakefield district council and the reasons why that council considers that the Department is totally out of touch with the problems being faced by local authorities.
We must not forget that, in addition to the re-billing exercise, local authorities are still having to contend with the poll tax that is still in place. In other words, in addition to the poll tax recovery programme—the resources involved in that process are extensive in many areas—local authorities are having to maintain the register and handle inquiries about rebates and so on. Local resources are stretched to the maximum because of the need for authorities to carry on with business as normal, in addition to recovering the poll tax and maintaining the register. I hope that the Minister will take that matter into account also.
I am sure that the local authority associations will make those and other points to him when he meets them. I, too, will be giving him my views about the reconsideration that is necessary by the Department of the work that local authorities are having to face because of the re-billing exercise.
An organisation called the Forum of Private Business has made representations to the Department about the way in which the problems facing small businesses need reconsideration. The Bill introduces a scheme to help small businesses over the next three years, until the implementation in April 1995 of rates based on the revaluation that will take place next year. The Forum of Private Business has asked, because there is such a long time between valuations, that the Government, instead of making minor adjustments to help small businesses get over certain problems, look at long-term solutions for helping small businesses. In the interests of these small businesses, we should be introducing a policy to sustain local businesses. The way to do that is via a rebate scheme.
I put to the Minister the argument made by the Forum of Private Business. Small businesses are extensive. Some 5 million provide employment and wealth. They are the seedcorn of future development. Therefore, it is important that any action taken by the Government should be on a long-term basis rather than a minor operation to get them over a difficult period—in this case, the high reassessment of properties and the protracted recession.
In the two years 1985–27, small firms created 500,000 jobs, so we are talking about a large part of our community. Small firms employ over one third of the private sector work force. They produce nearly a quarter of our turnover. We support the Bill because it helps, albeit in a minor way, these small firms.
The Association of District Councils has produced a report called "Small Firms in Britain", which draws attention to the remarkable growth of small firms through the 1980s. If we are to sustain that growth, it is important that help to small firms is on a long-term basis.

Mr. Redwood: Can the hon. Gentleman clarify the size of the scheme that he has in mind? How many firms and


what sort of money does he think should be given by way of reduction of rates bills to small firms? This would put some flesh on the bones that he is setting out.

Mr. O'Brien: Firms would be judged on their ability to pay. This must be done through the local authority, because this is a national tax on business. We consider that to be wrong and the Institute of Directors shares that view. I have here a document from it, published on 18 May 1992, which I am sure that the Minister will have received as well. It says:
Whilst the Bill addresses a short-term problem arising from the transition of the UBR and 1990 rateable values coinciding with the recession, it does not remove the need for longer term reform. The Government has still to produce a clear vision of the proper role of local government, without which it is impossible to decide the most appropriate division of responsibilities between central and local government, the most appropriate structure of local government and the most appropriate method of financing local government (the IOD favours a reduced role) but with the local government sector having greater autonomy".
The Institute of Directors has it right. There should be greater involvement of local authorities in helping small businesses.
We are not saying that a figure should be put on the rebate or what the reduction on rates should be. That is why, when the hon. Member for Cheltenham (Mr. Jones) moved the Liberal Democrat amendment, I said that additional resources should be channelled to those people who have difficulty in meeting rate bills. The Forum of Private Business has reported that the largest single cost upon small businesses is rent and rates. If we are to help these people, we should take into consideration what they are saying and they are saying that rates are too high. A rebate scheme would help them.

Mr. Bowis: Will the hon. Gentleman elaborate a little on his policy? As I understasnd it, he seeks ultimately the abolition of the present system and a return to the rating system. He also advocates the abolition of capping. Therefore, he is advocating an open-ended commitment to a rebate for small businesses, because there is no capping of the amount that can be imposed by councils on the businesses in their areas.

Mr. O'Brien: The hon. Gentleman is the first to mention capping. I was referring to a rebate scheme for businesses that find it difficult to pay their rates. That should be done by agreement between local authorities and small businesses. Business and domestic ratepayers should agree with the local authority on the level of services that they demand, and what they are prepared to pay for those services. I am against capping of local authorities, because I believe that the level of services should be decided in that way.

Mr. Bowis: The Labour party has said that it would organise the rates so that there was a ratio between domestic and non-domestic rates. Therefore, the commitment is open-ended. How much money is the hon. Gentleman suggesting should be in the rebate fund?

Mr. O'Brien: I am saying, and I repeat—

The First Deputy Chairman of Ways and Means (Mr. Geoffrey Lofthouse): Order. I hesitate to intervene, but the hon. Gentleman is referring to much that is not in the Bill. I hope that he will confine his remarks to what is in the Bill.

Mr. O'Brien: My remarks are at all times directed to small businesses. That is why, in response to the hon. Member for Battersea (Mr. Bowis), I said that there was no set level for the rebate. That would be a matter for agreement between small businesses and their local authorities. It would be based primarily on a business's level of income. Therefore, one cannot put a figure on the amount. If additional resources are to be made available and if the Government are contemplating long-term programmes to help small businesses, that is the way that they should approach the matter.
I am not alone in making that point. In Committee, the hon. Member for Ealing, Acton (Sir G. Young) referred to the same principle. He said:
We have heard a number of examples of some people who are well off and who vote but will not have to pay because they are exempt. We have heard other examples of people with no money but who will have to pay. That underpins the argument that many of us have put forward. The way to get round the anomalies and exemptions is to link the whole thing to the ability to pay."—[Official Report, Standing Committee E, 28 January 1988; c. 208.]
Any small business should have its rates linked to its ability to pay. That should be the result of a contract between local authorities and the small businesses. That is borne out by the Institute of Directors, the Association of District Councils and the Forum of Private Business. All those organisations make the same point. They are not members or supporters of the Labour party. I doubt whether the Forum of Private Business is affiliated to any political party. The Government should take note of what they are saying.
Therefore, when the Minister is considering long-term support for small businesses he should consider the observations made by the Institute of Directors, the Association of Local Authorities, the Association of Metropolitan Authorities, the Association of District Councils, the Association of County Councils, the Forum of Private Business and other pressure groups which are telling the Government that the 1988 Act is not working and that this minor Bill will not resolve the long-term problem that small businesses face. I also ask him to consider carefully the problems that local authorities are facing as a result of the Bill.

Mr. Nigel Jones: I assure the Minister that we on the Liberal Democrat Bench welcome the moves made in the Bill. Any help for small businesses is good news. Small businesses are the life blood of our country, and without them we would not be a successful nation.
The uniform business rate has been a disaster—almost as much of a disaster for many businesses as the poll tax was for many individuals. The Local Government Finance Act 1988 will go down as one of the worst pieces of legislation that the Government have introduced in their long term in office. We welcome the moves made in the Bill, but we regret that the Government have been unable to go any further.

Mr. Morgan: I want briefly to mention certain aspects of the Bill that have not yet been fully covered. As the hon. Member for Cheltenham (Mr. Jones) said, the Bill is an attempt to plaster over the problems caused by the hideous errors perpetrated by Nicholas Ridley, a previous Secretary of State for the Environment. The Local Government Finance Act 1988 (Amendment) Bill 1991—Ridley was wrong mark I—attempted to do forst domestic rates what this Bill—Ridley was wrong mark 2—attempts to do for the business rate.
All those who voted for the community charge legislation—that is the first time that I have used the phrase "community charge": as a member of the human race, I usually call it the poll tax. One can usually tell whether Conservative Members are members of the human race by whether they use the phrase "community charge" or "poll tax". It is a simple litmus test. The Minister is clearly not a member of the human race. Several times tonight he has referred to the community charge, even though it is dead. Perhaps one day he will join us.
A problem arises with business rates when a revaluation occurs at the top of a particular type of economic cycle—such as that from 1986 to 1988, which marked the high tide of Thatcherism. The runaway boom of that period affected in particular the retail, commercial, and property development sectors—but it has since gone into reverse.

Mr. Deputy Speaker: Order. The hon. Gentleman is straying rather wide. The Bill concerns the business rate and has nothing to do with the economics of the past, booms, or anything of that nature. I shall be grateful if the hon. Gentleman will stick to the Bill.

Mr. Morgan: I beg your pardon, Mr. Deputy Speaker. The purpose of my introductory remarks was to illustrate that the Bill would not be required but for the problems that arise when a revaluation occurs at the top of a particular type of highly biased and probably never to be repeated economic cycle, which causes particular problems to fall on the small business and retail sector in south-east England.
The high values originally set must now be adjusted downwards by the Bill, to meet a situation that could occur in any subsequent revaluation, in any decade. If a particular business sector or region is booming at the time a revaluation is made, the figure will be wrong. When the cycle reverses three or four years later, the companies will say, "We shall go bankrupt, or you will lose the election because we shall vote against you."
In 1990, the Government abandoned their 1988 legislation, saying, "For gawd's sake, someone bung small businesses a few bob, and see if they will still vote Tory in the next election." Some of them did and some did not—but enough of them voted Tory to return a Conservative Government, and now they are trying to undo the legislation introduced by Mr. Ridley, which was voted for almost sheeplike by so many Conservative Members.
Extraordinarily high values were placed on shops and offices in the south-east, but extremely low values were placed on factories—particularly in the north. The hon. Member for Bath (Mr. Foster) said that the shops in his constituency had been knocked for six. That is the inevitable consequence of the timing of the revaluation, which occurred in the middle of the 1986–88 shopping

boom. Everyone thought that there would be more shops and high-value boutiques of the type characteristic of towns such as Bath and Cheltenham which suck in tourists and casual travellers. Whent that cycle reverses and the economy goes bust instead, the business men cannot possibly continue paying high rates. One must have a measure which allows special contributions, to save such businesses from massive bankruptcies.
Are the Government telling us tonight that they are offering not just a short-term, papering-over-the-cracks solution, but one that will meet the boom-or-bust economic cycle that has benefited shops and offices in the south-east in the past, but which has now reversed and is moving the country's economic motor away from retailing, property development, as can be seen at Canary Wharf, and the south-east region to other regions of the country? It is not good enough for the Government to say, "This year, we'll give them a few bob. This year, we'll produce a one-off measure to refund the system that we put in place in 1988." This country and its local government must have a predictable, calculable, and fair system of raising money from domestic and business rates.
Ministers have not said a word today about how they have solved the medium-term problem, or how they propose to do so. All we have heard is, "Let's plaster over the cracks made by the Local Government Finance Act 1988 and the changes introduced in 1990. Please do that, just for now." Small businesses are screaming, bankruptcies are sweeping the country, and shops, hotels, computer centres, business parks and all the other parts of the economy that were booming five or six years ago are now experiencing a severe slump. Some way must be found to reduce the tax burden which was set at the peak of the economic cycle back in 1987–88.
We still want to hear some apology for the mistakes that the Government made when they 'nationalised' this aspect of local government finance in the 1988 Act. We want them to explain how they intend to lay out principles which will enable finance officers, finance committees and local councillors to see the way ahead, and to plan a reasonable level of expenditure without hanging on Ministers' every word each year, because they need to be able to plan more than three or four months ahead—beyond the next Minister's speech.
We also want a promise from the Government that there will be no more of the nonsense that we have been hearing lately. For instance, we do not want the owners of offices to be so terrified of the non-domestic rate that they expect to be stuck with that they strip their offices and remove all usable equipment, thus avoiding payment of any rate. Back in the industrial slump of 1980–82, factory owners in the west midlands were taking the roofs off their factories to avoid paying business rates, and the same could happen with Canary Wharf—Tarzan's very own tree, if I may refer briefly to the President of the Board of Trade. What would happen if huge new developments stripped their offices, rendering them unusable? Apart from the reduction in asset values, an additional burden would then fall on other business rate payers.
The Government have got themselves into an unholy mess since 1988 as a result of their arrogance. I have not yet observed any signs, from the Minister or from Conservative Back Benchers, that any lesson has been learned from that mess.

Mr. Paul Murphy: I shall speak mainly about Wales, as I did on Second Reading. I am sure that the Minister is aware of the problems that affect the Principality, but if he is not, the Parliamentary Under-Secretary of State will no doubt draw them to his attention.
On Second Reading, the Opposition emphasised their main caveat on the Bill. We wish to do the same this evening, albeit briefly. We shall, of course, support the Bill, because business people throughout England and Wales will be better off as a result of the changes it makes. The consequences of the 1988 Act were, generally speaking, disastrous, both in regard to the poll tax and for many small businesses. I hope that the Bill will go a small way towards alleviating those difficulties.
We must always remember, however, that the two sides of the House differ to a significant extent on what is and what is not a business rate, or a business tax. The Opposition believe that the present system is a business tax; we also believe that a business rate should be raised locally, spent locally and locally accountable, on the basis that finance is the essence of local democracy. The combination of the business rate that we are discussing and the proposed council tax—which will be with us in 1993—means that only a small percentage of the income now derived by local authorities will be raised locally. That is not good for democracy or for local government, and it is not particularly good for those who have to pay local taxes. Local government is at serious risk if its revenue-raising powers are taken away. Although the Bill is important, we do not support the principles that underlie it.
My hon. Friends the Members for Normanton (Mr. O'Brien) and for Cardiff, West (Mr. Morgan) referred to a number of practical problems with the Bill. I hope that the Minister will refer to them when he winds up the debate. Arrears are building up at an alarming rate in many local authorities in England and Wales as a result of the introduction of the business rate. In addition, many local authorities, including some in Wales, face the serious problem of non-payment of the business rate. Many people believe the business rate does not have to be paid until the Bill has gone through all its legislative stages.
I appreciate that payment of the business rate will be backdated, but many business people do not appear to do so. Therefore, the Government should make it absolutely clear how non-payment of the business rate will harm local authorities. The income of many local authorities has been seriously affected. The loss of interest as a result of non-collection particularly harms those parts of the country that can least afford it.
My hon. Friend the Member for Normanton referred to computer systems and said that a number of local authorities have had to resort to manual systems to deal with the changes that have already been made and that are about to be made with regard to the business rate. I hope that the Government will provide practical help to local authorities, in the form of both software and hardware. I hope, too, that there will be closer liaison between local authorities, the Department of the Environment and the Welsh Office to overcome those practical problems and to deal with the difficult area of local government finance that local authorities will have to face up to during the next eight months.
The changes will cost £25 million in Wales alone. In addition, there will be many administrative costs. On 1 April 1993, local authorities will have to introduce the brand new council tax. The practical difficulties caused by the combination of the two tax changes will lead to considerable strains on local government finance and on manpower and the way that they deal with their business.
The Government should think carefully about the fact that they have postponed discussion in the House of the rate support grant settlement for both England and Wales as a direct result of the instability that these changes have caused. Furthermore, the standard spending assessment is very difficult for laymen and experts to understand. On top of that, local authorities are faced with capping. All these issues with which the Bill deals means that there could be considerable instability and, in some local authorities, financial chaos in the months ahead, unless the local authority associations and the two Government Departments that are responsible for them get together quickly to solve it.
When I look at local government finance in 1992, I wonder whether it is any more stable and any less chaotic or difficult to understand than it was a quarter of a century ago when we discussed, in Green Papers, royal commissions and so on, the changes that we needed to make to local government finance. Nothing much has changed.
There is a Welsh dimension that is different from the English. It seems that there is to be no local government reform of any substance in England. However, the Secretary of State for Wales has said that he intends to go ahead with the main changes in local government reform that he announced before the general election. Those changes in council tax and business tax must be coupled with the fact that there might be substantial changes in the structure and nature of local government in the Principality in the next two years. Those changes will be so dramatic that the county council elections might be abandoned and the two tiers of local government merged into one system of unitary authorities.
Local authorities are expected to budget properly for their respective areas during the next few weeks and months. How can they do that properly with all the uncertainty, instability and changes in transitional relief that have been thrust upon them in recent months and years?
I believe that the Bill is relatively meaningless unless it is seen in the context of all the other changes that will be put upon the people of Wales in the next year. My hon. Friend the Member for Normanton and my other hon. Friends believe that there must be a settling down period in local government, particularly local government finance. We have seen too many changes in the past few years. Some of those changes, such as the poll tax, have been catastrophic and calamitous.

Mr. Morgan: Too much polyfilla and not enough bricks and mortar.

Mr. Murphy: My hon. Friend is right.
The controversial council tax that will be in place in the next few months does not help. There have been disputes over valuations and there will be even more disputes when the appeal tribunals become operative after the council tax has been set up. The business rate is constantly changing and the rules are altering all the time. That means that the


business community is fast losing confidence in the way in which it has to pay its taxes or rates. The credibility of our local government system is now at stake. During the next few months before the summer recess I urge, and beg the Minister to talk seriously to local government in England and Wales about the problems of instability facing local authorities. If he does not, I fear for the future.

Mr. Redwood: The hon. Member for Normanton (Mr. O'Brien) began by saying that the Bill is a significant amendment to the Local Government Finance Act 1988. He concluded by saying that it is a trifling proposal, or words to that effect. In that, he was echoed by his hon. Friend the Member for Cardiff, West (Mr. Morgan). Let me clarify what we are doing and what we agree and disagree about.
The Government are improving the basis of the transitional relief scheme so that businesses can obtain relief from their bills, especially those which faced largish increases over a number of years as a result of the revaluation. We are not changing the fundamental base of business rates introduced by the 1988 legislation, which was to give businesses the pledge that the poundage would not rise by more than the rate of inflation.
That remains the fundamental divide between the Government and the Opposition. We are saying to businesses that, once the valuations are stabilised, as they will be when transitional relief is fully exhausted and worked through, nobody's bill will increase by more than the rate of inflation. Business never enjoyed such benefits under a Labour Government and when there was a scheme which allowed Labour and Liberal local authorities to impose their own level of business rates in each locality.

Mr. William O'Brien: On Second Reading, the Minister said that, there was a possibility that the transitional relief system may not be achieved by businesses because it may be influenced by revaluation next year. He has just said that, when the transitional relief system has been exhausted, we shall be back to a level of no more than the rate of inflation. How does he reconcile those two comments? Perhaps he will tell us why he has changed his mind since 19 May.

Mr. Redwood: The hon. Gentleman should listen. I said that the rate of inflation would apply to the poundage being charged, and that a stable valuation base was necessary for people to enjoy that benefit in their bills. The lack of a stable valuation base and the long gap between revaluations led to our introducing transitional relief to ensure that increases would not be too great. We are offering more generous treatment this year. In the Budget, we recognised that some businesses were under cash flow pressures, and this is one of a package of measures to give additional relief.
The big divide between the Labour and Conservative parties is that we are offering the pledges of regular revaluations to avoid the problem of a big backlog—and a big jump as a result—in the change in valuations, and the poundage will not rise by more than the rate of inflation. Labour is proposing a return to a system whereby Labour and Liberal local authorities can choose to increase rates by the amount they wish. They are saying that business should pay and pay again if a local authority chooses to tax it.
Where are the Opposition's proposals to improve accountability and to give business a vote and some influence over council decisions? I see no proposals at all. We have offered protection to business, because we believe in it, and we want it to flourish.

Mr. Murphy: Does the Minister agree that the logical consequence of that argument is that local government raises no revenue?

Mr. Redwood: That is not the logic of the argument. At the beginning of the next financial year, we shall introduce an accountable local tax to raise revenue. Individuals will, rightly, have the vote and will have more influence over what their local authorities can choose to spend. Elections will be held on how much value councils get for the money that they spend and how much money they are raising within the generous overall controls of capping, which will apply where we feel that people need to be protected from the extremes of Labour or Liberal authorities.

Mr. Murphy: Perhaps I can put it another way. Only 11 per cent. of the income of Welsh local authorities is raised locally. That cannot be right for democracy. If 90 per cent. is raised centrally, will not 100 per cent. eventually be raised by central Government?

Mr. Redwood: There is no proposal before the House to abolish all local taxation. The House recently passed legislation confirming the council tax, with all its details worked out from the centre, which needed to be worked out a year in advance so that councils would have time to build the computer programs and get on with planning a smooth transition.
I hope that the Labour party will calm down about local taxation and will recognise that this fair proposal has been modified following consultation and that the council tax should be the means of raising local incomes so that local democracy, in which I hope both sides believe, can have full rein. I look forward to seeing the proposals of the hon. Member for Torfaen (Mr. Murphy) for a massive increase in the amount of money raised locally from individuals, which now seems to be what his party is implying. It would be interesting to all those facing their council tax bills next year to hear that the Labour party does not think that they pay a big enough proportion and would like to see more money raised from them.
The hon. Member for Normanton has not answered my point about accountability for business.

Mr. O'Brien: The Minister appears to forget that his Government increased VAT to help to pay for local government finance. Will he assure us that there will be no further increases in VAT to finance local government? The Minister should remember that his Government increased VAT, which affects everyone. We are saying that local taxation should be based on the ability to pay.

Mr. Redwood: My right hon. Friend the Prime Minister was very clear on VAT in the general election campaign, and I have nothing to add to his very clear statement. It is a cheap and silly debating trick for the hon. Member for Normanton to introduce that point.
The Conservative party is firmly behind the council tax, which will go in on time. The Labour party should have the decency to say, "Yes, we will live and work with that system because here is an opportunity for local democracy"—in which it claims to believe—"and for an


independent source of local finance based on property". That is what the Labour party wanted, although it never had a sensible, workable proposal which bore examination or stood up to proper scrutiny.
The big divide between Labour and Conservative in the House is over whether or not we offer business some protection from large and specific increases in poundage in particular localities. We say that we should, that we do and that we will. The fundamental principle of the 1988 legislation is not challenged by the Bill.
The Liberal Democrats wish to go over to site valuation, which would be ruinous to many small businesses in the south. I hope that one day someone will write a good analysis of how bad an impact that would have, so that all can see what an absurd idea the Liberal Democrats support.

Mr. Morgan: The Minister says that the Bill does not breach the principles of the 1988 legislation. I remember sitting in this same spot when Mr. Ridley explained the virtues of the legislation, especially in respect of the business rate. He said that the entire transitional relief scheme would be self-financing. The Bill involves Exchequer financing. How can the Minister sit there, with his usual straight face, and tell the House that the Bill is not a breach of the fundamental principle of the business rate for which he voted? All the sheeplike Back-Bench Conservative Members voted for that as well.

Mr. Redwood: The hon. Gentleman keeps shifting his ground because he cannot win on the ground that he chooses first. The big principle is whether local authorities are left with the discretion to increase taxes in any way that they like on businesses which do not have the direct relationship with them through the vote which individuals have. On the question of Exchequer funding, I have already explained that the purpose of the Bill is to bring before the House the part of the Budget measures which allocate more moneys from general taxation and from public borrowing to help the business sector. That is perfectly reasonable in the context that I have described.
We want to offer more cash flow help to business, and we have decided to make the terms of the transitional relief scheme, which were always part of the original proposals, more generous. I thought that the two major parties agreed on that, and I hope that the hon. Member for Cardiff, West (Mr. Morgan) will now see that it is reasonable to offer that additional assistance—[Interruption.] I said clearly that the big principle in the 1988 legislation was whether local authorities had the right to increase bills themselves in any way they saw fit—[Interruption.] That was the principle that the Labour party has tried to establish in the debate—[Interruption.] That is the principle that we have opposed.

Mr. Deputy Speaker (Mr. Michael Morris): Order. I am having great difficulty hearing the Minister because of sedentary remarks. I should be grateful if the whole House would listen to the Minister.

Mr. Redwood: You are very courteous and helpful, Mr. Deputy Speaker. Opposition Members are a little rattled because they are not making any progress in their rather weak arguments tonight.
I will repeat some helpful points for Opposition Members. I and my officials will study carefully any representations made by Opposition Members on the question of re-billing costs and the cash flow to local authorities. I take up the point mentioned by the hon. Member for Torfaen. The position has been made very clear. Businesses should carry on paying the instalments and bills that they have received until such time as the rebilling exercise has been completed, assuming the safe passage of the Bill through both Houses and Royal Assent.
I am grateful to Opposition Members who have done their bit to help to speed the legislation. The best help that we can all offer business is to ensure the smooth and rapid passage of the Bill through the House so that the rebilling exercise can be carried out quickly and effectively and so that people get the benefit of the legislation as promptly as possible.
We shall, of course, study any cost analysis that the hon. Member for Torfaen may have on a reduction in rebilling costs. We have a basis for our own calculations and we are consulting the local authority associations. I reaffirm a point I made in other forums in answer to the hon. Member for Torfaen. We intend to consult and liaise closely with individual local authorities and with local authority associations. My right hon. and learned Friend the Secretary of State and I have already met the local authority associations on more than one occasion since we took over our present tasks.
I have recently toured different parts of the country to meet local authority representatives, and I intend to do as much of that as time and business pressures permit. I like to see for myself what is happening on the ground, to listen to the views of local authority officers of all political persuasions and to meet people in my offices in Whitehall and here in Westminster.
The hon. Member for Cardiff, West attacked the system when he said that it was not calculable or predictable. That is exactly what a national business rate with a specified rate of increase in poundage will be when compared to Labour's system where the poundage would move around as well as the valuations. The more regular the revaluations, the more stability there will be from the valuations. The successful completion of a quinquennial review will help to stabilise the system compared to the long gap in the previous case.
The hon. Member for Torfaen was worried about the degree of change and stability in the system. There are changes in local government at the moment. However, my predecessors made a sensible point of passing legislation and setting out the main points of the council tax as early as possible, thus leaving people with more than a year in which to plan against the background of that legislation and the main principles of the proposals now coming before us for final implementation.
With regard to structure reform, I was not sure whether the hon. Member for Torfaen suggested that he admired the Welsh model and not the English model or the other way around. He seemed to argue it both ways. Let me reassure him that the Government do not lack enthusiasm for a sensible reform of local government in England as well. I hope that we shall shortly announce more proposals to flesh out the details that have already been passed in legislation. They will make it clear that there will be a structure review in the English shire regions which will start soon when we can make the necessary arrangements and announcements.

Mr. William O'Brien: I have listened carefully to the Minister's response. I referred to the Forum for Private Business; I am sure that the Minister has received a copy of the circular that I have received, in which the chief executive states that the forum is prepared to work with the Government in respect of small firms. He also states:
This is a critical time for small firms, many of whom are suffering cash flow problems with less support from the banks.
It is not just a matter of rents and rates. Other issues are involved with regard to the cash flow of small firms. Will the Minister consider what the forum for small businesses has said and, if necessary, will he enter into discussions and listen to what the forum has to say about the important issue of cash flow?

Mr. Redwood: My hon. Friend the Under-Secretary of State for the Environment who is responsible for local government affairs will meet the forum on 1 July if all goes according to plan. He will listen carefully to what its members have to say. Several Ministers over many months have listened to what the forum has had to say. They have read its surveys and have had meetings with representatives. Undoubtedly, the forum helped to influence the Chancellor's and the Government's decision to announce a package of measures in the Budget to help business cash flow of which this Bill is but one.
The voice of business through the forum and through other channels of communication to Government does not go unheard. I promise that my hon. Friend the Under-Secretary of State will meet the forum soon and that he will listen to those specific points. The hon. Member for Normanton should bear in mind that we have announced and are carrying through a substantial package of relief from business rate increases which we hope that the forum and other small business representative groups and small businesses themselves will welcome.
I trust that the House will give a swift passage to this legislation. The Bill will be very welcome in the business community, and I hope that it will receive its Third Reading without any further Division.

Question put and agreed to.

Bill accordingly read the Third time, and passed.

Mr. Bob Cryer: On a point of order, Mr. Deputy Speaker. I wonder whether you have had a request from the Leader of the House to make a statement about the legislation that is to be considered in Committee tomorrow, in view of the delightful and welcome news that it appears that the Danish people have very sensibly voted against the Maastricht treaty. If that is the case, it means that the whole of the treaty paraphernalia will collapse and that the business which is to occupy the House for the next two days will be completely wasted. Therefore, it would seem sensible for the Leader of the House to make an early business statement so that we may take into account the good news from Denmark.

Mr. Deputy Speaker: I confirm to the hon. Gentleman that I have heard nothing about that matter, but I imagine that members of the Government have listened to him.

Water Charges

Motion made, and Question proposed, That this House do now adjourn.—[Mr. David Davis.]

Mr. Paul Tyler: I wish to raise the issue of general directions to OFWAT, the Office of Water Services, in regard to water charges. First, I should like to explore the residual relationship between the Minister's responsibilities and those of OFWAT, to explore the extent of the Minister's responsibility for water and sewerage services on behalf of the public, and secondly I should like to establish the role of the Director General of Water Services under the Water Act 1989 in defending the public interest.
There is wide concern at present at the extent to which the water and sewerage industry appears to lack accountability or responsibility not just to Ministers and to the House but to the general public. I wish to explore for a few minutes who now defends the public interest in relation to water charges, who now sets the criteria for charging policy, and who now ensures that the national investment objectives, which in the past were undertaken with a system of equalisation grants between the richer and poorer parts of the country, are met. I want also to examine how precisely OFWAT and the Director General of Water Services operate within the ministerial direction.
As the House will recall, when the legislation was first prepared and considered in this place, it was assumed that the so-called K factor would be a negative sign. It was assumed that it would be possible to allow charges which would increase by less than the annual rate of inflation. In fact, with the dramatic change in the obligations that were laid upon the industry, especially by the European Community bathing and drinking water quality directives, the K factor had to be plus from the first time that it was used.
It was originally assumed, when the legislation was being prepared, that a 10-year interval between reappraisals of the K factor arrangements would be sufficient with just a half-time check at the fifth year. In practice, the pressure has been on for intermediate assessment. There have already been a number of changes, even during the short period since the Act came into force. I shall return to a specific example—that of South West Water—to illustrate the major change that has taken place in that area.
With those major changes in the circumstances which have inevitably led to major changes in the assumptions on which the calculations are made, there is necessarily a complete reappraisal of the role of OFWAT and indeed ministerial responsibility for giving directions to OFWAT.
The Director General of Water Services has been juggling with a large number of variables—capital programmes, revenue expectations, borrowing requirements, European Community obligations, and profit and dividend levels. Clearly, the Director General, Mr. Ian Byatt, has had considerable difficulty in identifying precisely where his responsibilities begin and end. For example, on 19 June last year, he was reported as saying:
companies do not need … big dividend increases because stock market expectations for all companies' dividends have been reduced.


He went on to warn that the K factor of the companies could be made more onerous if they paid excessively high dividends to their shareholders instead of ploughing money back into their businesses. He also argued that:
where new obligations are imposed on the companies in the first five years, the cost of the additional borrowing could be accommodated without an equivalent increase in revenue.
The frustration that the director general obviously felt at the limitation on his powers and role was already evident then. As if that were not enough, complex additional problems resulted from the new roles that the water companies felt that they could undertake through diversification.
For example, Welsh Water owns five country house hotels and a civil engineering business, and boasts an almost 15 per cent. stake in South Wales Electricity worth £51 million. South West Water has a property business, a civil engineering arm and a multi-million-pound 20 per cent. holding in West Country Television. The company also runs gift shops. Southern Water and Northumbria Water run car-leasing firms. Northumbria also has a personnel management company. Yorkshire Water has a direct mailing organisation.
When those diversification activities become apparent the director general issued a general warning about the extent to which they could divert the attention of the management away from their core business. My Liberal Democrat colleagues in the House and in another place sought to stop up that loophole. Eventually the Government introduced their own amendment, but it is far from clear that the role of either OFWAT or the Government has been strengthened or that diversification will be prevented, or at least limited, to ensure that it is in the public interest. It is clear from every statement made by OFWAT that there is frustration at the director general's lack of powers in respect of diversification.
Thirdly, I wish to deal with the specific case of South West Water. Obviously, in my constituency of North Cornwall, it is anorganisation that we know well, although I cannot say that we love it. It has a tarnished record of secrecy, complacency and expensive empire building, but it is not to that record that I wish to draw the attention of the House tonight.
I wish to demonstrate that what has happened to water charges in the south-west exemplifies the deficiencies of the legislation passed by the House. I should say in passing that I welcome the repentance of sinners on the Conservative Benches who voted for that legislation but have now seen its deficiencies.
South West Water is the only privatised company to have sought and be granted a major increase in its K factor for 1992–93, 1993–94 and 1994–95. In the first year, it will amount to 16p in the pound. Obviously, in the following years it will depend on the rate of inflation. South West Water is one of only two companies which did not voluntarily defer the K element in 1991–92.
However, the south-west also has huge problems. It has a long stretch of coastline, which is a major national, if not international, asset. That has attendant alarming problems of coastal erosion and pollution. But the area has the extra problem of a demanding burden from our annual holiday invasion. It is also an area of low average household incomes. Yet it is now likely to have the highest average household charges of all 10 water companies—it is already

No. 3 in the league. There is therefore now a major affordability gap between what is expected of the water charge payers of the south-west and what they can afford.
We should note, as there have been additional reports on this in the last few weeks, that the south-west has above-average wastage—up to one third of the supply from our reservoirs is lost through leakage.
To cap it all, last week the company announced record profits, record dividends and—less obviously and less ostentatiously—record executive bonuses.
All those issues are regularly drawn to the attention of my hon. Friends the Members for Devon, North (Mr. Harvey) and for Truro (Mr. Taylor), who are here tonight.
Against that background, the Director General of Water Services had to assess the bid for South West Water for an increased K factor. The announcement was made just before Christmas, during the recess, and received remarkably little publicity. The factor was 6·5 per cent. in the previous year and was increased to 11·5 per cent. for 1992–93.
Many water charge payers in the south-west expected that, when the additional funding was available to the company, South West Water would immediately announce additions to its programme, the acceleration of existing elements in it and the upgrading of schemes in the programme, to show what we would get for the money. We got no Christmas present. Hon. Members will recall that occasionally politicians are accused of producing menus without prices. South West Water produces prices without a menu. All it did was produce a press release in January which said:
The additional 5 per cent. is largely"—
I emphasise "largely"—
needed to fund new obligations imposed since 1989".
It continued by referring to those obligations as:
—bringing forward the existing programme of schemes largely by 1995
—providing land-based sewage treatment for those schemes
—ending the disposal of sludge to sea by 1998".
We have not received any specific programme of change as a result of the additional funding.
OFWAT has again seemed to be impotent in the face of those unexpected profit levels, and has not been able to show what we are getting for our money. The Director General of Water Services is clearly frustrated at the extent to which the advice that he gives to the companies is ignored. I shall quote from a letter to me from OFWAT, which refers to the 1991–92 increase in charges as follows:
You will see that Mr. Byatt's view is that profits should be viewed in the medium term rather than on an annual basis. He has, however, drawn the company's attention to the importance of customers receiving some of the benefits of the recently announced profits. He has suggested this might be by way of increased capital investment in their new environmental obligations or by not taking up the whole of their charging limit in 1991–92.
That letter was in direct response to a request for information about his attitude to the increase in charges by South West Water, but it would clearly apply equally well to other companies privatised by the Water Act 1989.
I have several crucial questions for the Minister. First and foremost, are the Secretary of State and his colleagues satisfied with his and OFWAT's powers in respect of water charges? Secondly, is he satisfied that the customer is adequately protected from excessive water charges by the powers?
Thirdly, what can the Minister do, post-privatisation, to reintroduce national Exchequer support, by way of a green dowry or by any other means, to ensure equalisation between the richer and less well-off parts of the country and to ensure adequate investment in national assets such as the south-west coastline?
Fourthly, we urgently need to know—I know that this view is shared throughout the House—whether the company's privatised status precludes the allocation of European Commission's rural development fund grants. My information is that it does, but the matter needs to be cleared up once and for all. We do not want any more false promises.
Fifthly, is the Minister satisfied that OFWAT's powers are sufficient to prevent the distracting diversification, to which I have referred, and which causes concern in all parts of the House? The Director General of OFWAT clearly expressed great concern, and we should now know whether Ministers are equally concerned.
Sixthly, what can the Minister or OFWAT do to stop companies adding insult to injury as they have in the past few days? Last week, with Cornwall and Devon in a severe depression and many people facing extortionate water bills, The Western Morning News reported:
South West Water chairman Keith Court is set to collect a company shares bonus worth £137,000 on top of his £89,000 a year salary—while customers receive bills set to rise by at least a third over the next three years.
My hon. Friend the Member for Rochdale (Ms. Lynne) will seek to catch your eye, Mr. Deputy Speaker, to refer to an equally damaging situation that has arisen in the north-west. In a sane world, chairmen would be given a bonus for reducing water charges by record amounts, not for increasing them.
Finally, how can the Minister and OFWAT tame what even the chairman of South West Water has admitted, in a letter to my predecessor, is a "monopoly organisation"? Those are crucial questions and many people throughout the country, not just in the south-west, are waiting for positive answers from the Minister.

Mr. David Harris: I and all hon. Members from the south-west are grateful to the hon. Member for North Cornwall (Mr. Tyler) for raising this important issue. As the hon. Gentleman said, it is of particular relevance and importance to consumers in the South West Water area, because they are paying—and will be paying for years to come—much higher increases in their water charges than consumers in other parts of the country.
The hon. Member for North Cornwall has highlighted the reasons for that—the principal one being that we have such a long coastline. We have also suffered years of neglect on an enormous scale, particularly with regard to sewerage facilities. Around the whole coastline of Devon and Cornwall, one finds beach after beach where sewage is poured out on to the beach or into the sea a few miles away. That is an intolerable situation. We recognise that, and we have all been campaigning to correct it. We also have to face the consequences of that. However, the hon. Member for North Cornwall did not pay particular attention to that aspect of the matter or to the fact that massive bills to clear up the neglect and the awful position on the coastline will have to be met. The question is how those bills are to be met.
I agree with the hon. Member's implication and assertion that far too great a burden is being placed on consumers and those who have to pay the charges of South West Water. As the hon. Gentleman said, the Director General of Water Services authorised an average increase of 16 per cent. on charges this year. That average is based on a basket of five separate tariffs, at the highest level of which some people are being called on to pay an increase of 27 per cent. in their water charges this year.
I admit frankly—I have said it frequently in my constituency—that that is an unacceptable burden, particularly for consumers living on small incomes or retirement pensions. It hits particularly hard those living on amounts which take them just above any measure of income support, so that they do not receive help with any aspect of daily living, such as meeting the community charge or housing costs.

It being Ten o'clock, the Motion for the Adjournment of the House lapsed, without Question put.

Ordered,
That, at this day's sitting, the Non-Domestic Rating Bill may be proceeded with, though opposed, until any hour.—[Mr. Arbuthnot.]

Mr. Harris: Since I have spoken out on this, I have received many letters, including letters from constituents of other hon. Members in the south-west. Other hon. Members will have received similar correspondence. In my constituency, this issue was raised more frequently than any other during the general election campaign. Having talked to hon. Members on both sides of the House, I have found that they too found it a frequently raised subject.

Mr. Anthony Steen: The graph since 1974 shows that the capital invested in South West Water by Labour and Conservative Governments has been inadequate to cope with the later clean water and pollution of the sea directives of the EC. It has been pointed out that the south-west has one of the longest and most complicated coastlines in the country. The consumer is now expected to pick up the shortfall which successive Governments have caused and which was left with South West Water when it was privatised. The question is whether the consumer now has to pick up the tab for the shortfall or whether the Government will accept that the burden is too great and that something special must be done.

Mr. Harris: My hon. Friend is right, and I was about to come to that.
How is the burden to be met, as between the consumer on the one hand and any other source of help on the other? The Government, through privatisation, have made a considerable sum available to South West Water, as they have to every other water company, through the so-called green dowry.
In the light of the extra requirements that have been placed on South West Water, to which my hon. Friend the Member for South Hams (Mr. Steen) and the hon. Member for North Cornwall referred, it is clear that new factors have entered into the equation since the legislation was passed. I am therefore not a sinner who repents, because we are dealing with new factors. We must recognise those and the burden that the new European factors have placed on South West Water and its customers.
There are two ways out of the problem. First, if the Government recognise the special case being made for South West Water by hon. Members in all parts of the House—there is nothing between us politically on this—they must accept that South West Water is in a peculiar situation. That is borne out by the decision of the Director General of Water Services, who has authorised an extraordinary increase in charges for South West Water.

Mr. Steen: And not just for this year.

Mr. Harris: My hon. Friend is right. It represents a continuing set of increases. The Government should provide extra help. Hon. Members who represent Devon constituencies have already seen the Secretary of State for the Environment. I put in a request, on behalf of Cornish Members, to see him to follow up the excellent case made by Devon Conservative Members of Parliament.
South West Water should be applying to another source of funds—the European Community—under the European regional development fund, or the structural fund as it is now called. When I was the Member of the European Parliament representing Cornwall and Plymouth, we received considerable assistance from what was in those days the European investment bank.
I consulted my successor as Member of the European Parliament for Cornwall and Plymouth, Mr. Christopher Beazley. He assured me that South West Water has had grants from the European development fund and that there is no bar to the continuation of those funds even though it is now a privatised company. In my day as the European Member of Parliament, the criterion was always that grants should go to a public authority or an organisation carrying out the services of a public authority, and I am told that that has not changed fundamentally. By one means or another, or by a combination of both, the burden on the hard-pressed customers of the South West water authority should be lifted and eased.
My hon. Friend the Minister had the great good sense to spend part of last week walking across part of my constituency, from the south to the north coast. I wish that I had known in advance, because I could have arranged for many people to meet him on the way, brandishing their water bills. I am sure that that would have had a much greater effect than this debate. I am sure that it would have made his holiday as he walked from Hayle to Marazion. Perhaps that was a missed opportunity.
I am sure that my hon. Friend has listened to the debate, however, and I can assure him that this issue will not go away. Members of Parliament from Devon and Cornwall—the South West Water area—will continue to press the issue with vigour. We are determined about this because it is a serious matter and we owe it to our constituents to get some justice in the amounts that they are being called on to pay.

Ms. Liz Lynne: I agree with my hon. Friend the Member for North Cornwall (Mr. Tyler), but everything he said about South West Water is also true of North West Water. I understand that OFWAT is monitoring the situation, but does it realise that the profits of North West Water are up by 7·3 per cent.? What is it

doing to ensure that bills go down as profits go up? It is doing very little, and I should like it to have a few more teeth.
I should like to draw attention to the salary increase of the chairman of North West Water. Dennis Grove is on a salary of £144,000. The value of his share option is £260,000. That salary has risen by 206 per cent. since privatisation, while water charges have risen by 29 per cent. OFWAT should go beyond monitoring and take action to ensure that the bills for ordinary householders decrease. As has been said, people are struggling to pay those bills, and it is about time that the chairmen waived their salary increases and ensured that consumers had bills that they could afford to pay.

Mr. William O'Brien: This is an important and significant debate, because of the concerns of people about the various regional water authorities. I am grateful to the hon. Member for North Cornwall (Mr. Tyler) for raising the subject in an Adjournment debate. Many hon. Members who have had communications with OFWAT are concerned about what is happening in their areas. The replies that we recieve are negative. OFWAT appears to be helpless and refers Members to the regional water companies, which in my case is the Yorkshire water authority. In my area, real problems are developing because of Yorkshire water authority's attitude to many aspects, particularly charges.
In the year 1990–91, bills increased by 13 per cent., and that at a time when inflation was falling. Throughout the year, the average rate of inflation was about 5 per cent. There was a massive increase in charges, over and above the K factor which was set out in the legislation and which should have been monitored by OFWAT. When I took the matter up with the director general, I was advised that the increase was a matter for the Yorkshire water authority. We need some explanation of the various roles of the water companies and the extent of their monopoly powers.
During a four-year period, standing charges in my constituency have increased by between 400 and 500 per cent., with the result that unit costs can be very expensive for those using only minimum amounts of water. That increase in standing charges is another matter that should be addressed.
My constituency held one of the compulsory trials for water metering which gave rise to tremendous problems. We are now advised by the Yorkshire water authority that, when the three-year period set by legislation for the 12 trial areas expires, the charging method will revert to the regional system. Those involved in that trial had no choice about whether to take part in the trial. Since it was compulsory, people should have the option of continuing on that scheme or reverting to the original charging system based on rateable value. If they do not, the water companies have been given more powers than the House wished them to have when the trial periods were introduced. Again we come back to OFWAT's authority and what influence the Minister has in the event of legislation being abused. That problem should be addressed by the Minister.
We are also finding that water authorities are not only interested in providing pure water and sewage discharge services but investing in other sectors, which is an abuse of privilege. Water charges are being increased at rates higher


than inflation—nearly three times higher in Yorkshire in 1990–91—yet the money raised is not invested in the industry.
Water wastage is another matter that ought to be addressed. When we challenge the water companies on why they do not take action to save the 25 per cent. or 30 per cent. of water that is wasted in the system, we are told that it would be uneconomic to locate the wastage points and to repair them—that it is cheaper to let the water run to waste. That is totally foolish and out of compliance with value for money. That is another aspect over which OFWAT has no influence, so I hope that the Minister will take action to prevent water waste arid to stop money being wasted by water companies.

The Parliamentary Under-Secretary of State for the Environment (Mr. Tony Baldry): The average household—not person—in the south-west pays 62p per day for its water. That is precisely the daily cost of a copy of The Western Morning News and a pint of milk, so 62p a day seems to me to he good value to a household.
South West Water has achieved 99·6 per cent. compliance with bacteriological standards; dealing with foul water and sewage; and providing for investment to continue to enhance water standards and to ensure an adequate supply. Customers and visitors to the south-west have benefited from investment of £60 million in the water supply network since privatisation, which has meant no water restrictions in the south-west since 1990—despite record levels of customer demand.

Mr. Tyler: Will the Minister give way?

Mr. Baldry: Yes, I will—but the hon. Gentleman asked a number of questions, and a lot of time has been taken up by other hon. Members. The hon. Gentleman has a choice. I will give way, but I may not have time to answer all the questions that he put to me.

Mr. Tyler: A number of households in north Cornwall had hosepipe restrictions imposed last summer. Is the Minister saying that there were no restrictions on water supplies last summer?

Mr. Baldry: I am saying that there have been no restrictions in the south-west since 1990, despite record levels of customer demand.
Understandably, people want the purest possible drinking water, and an assurance that their foul water and sewage is dealt with in a way that is as environmentally sound as possible. In an area such as the south-west, where a substantial proportion of people are involved in tourism, people want the cleanest possible beaches, with bathing waters reaching the highest possible standards.
My hon. Friends the Members for South Hams (Mr. Steen) and for St. Ives (Mr. Harris) made it clear that ever improving environmental standards mean continuous investment in the water industry. One reason that the industry is having to undertake so much investment now is to rectify the neglect of many decades, caused by relatively low priority in the public sector.
That was most notable during the time when the party of the hon. Member for North Cornwall (Mr. Tyler) colluded in the now infamous Lib-Lab pact—when, in 1976, the Lib-Lab Government of the day stopped all further investment in the water industry overnight.
The water industry must also satisfy the many new environmental standards that are rightly being demanded by the House and the European Community. To meet those demands, the industry as a whole has a programme of investment in excess of £28 billion between now and the turn of the century. That is £1,000 of new investment each and every minute of each and every working day.
In the south-west, that means massive investment. Capital investment by South West Water has more than trebled, rising from £49 million in 1988–89 to £172 million in 1991–92, and it is set to rise again this year. A total of 115 improvement schemes, involving treatment works, mains and sewers, were completed last year, bringing benefits to customers, visitors to the region and the local environment. Six hundred further schemes are under way across the region this year.
Coastal sewage treatment is being put into place for the first time. South West Water's "Clean Sweep" programme is one of the largest programmes introduced by any water company in Europe, and is set to clean up 81 beaches and bathing waters, thereby helping to ensure compliance with the EC designated bathing waters directive. The hon. Member for Cornwall, North seemed unclear what South West Water was investing in. I am sure that the company would be more than happy to take him through the many investments and improvements that it is undertaking, item by item.

Mr. Steen: The Minister mentioned the amount paid by each household in the south-west for its water. Are people in other parts of the country paying other water companies less or more?

Mr. Baldry: In other parts of the country, householders are paying what is deemed appropriate for improvements in those parts of the country. Different areas have different requirements, and that is reflected in water charges.

Mr. Matthew Taylor: Will the Minister give way?

Mr. Baldry: No, I will not give way again. I have been asked a number of questions, and time is short.
The hon. Member for Rochdale (Ms. Lynne) has contributed to the debate, and I hink that it would be courteous to respond to her contribution. She complained about the increase in charges in the north-west. North West Water's total proposed investment, however, is £5 billion up to the year 2000: that is £2 million a day, or £20 per second every working day, and it will be invested to enhance water quality.
The water industry is now free to use the private-sector money markets, and can raise the necessary finance to implement the improvements that are demanded by both customers and environmentalists. Moreover, it can make those improvements within the timetable that has been set, confounding the sceptics. Yes, the water companies have made profits: without profits they could not attract the finance that is necessary to fund their investment programmes. Those profits, however, have not been excessive; nor have customers been required to meet too large a proportion of the cost.
Indeed, commenting on last year's results, the Guardian business page described them as
relatively modest profit and dividend figures".


The Independent said that the division between one third of the profit, which went to shareholders, and the remaining two thirds, which was ploughed back into the business, was
a split which it is difficult to criticise".
Those reports display rather more financial realism than some Opposition Members.
South West's results for the latest year indicate that, although pre-tax profits have increased by 2 per cent., the level of the company's investment has risen by 45 per cent. Without commensurate returns for investors, the industry would find itself unable to attract the finance that it needs. Charges are having to rise to meet increased investment.
We recognised that after privatisation a strong framework of public regulation would be necessary, and it is for precisely that reason that the Director General of Water Services was appointed. He is an independent regulator, whose primary duty is to ensure that the appointed companies carry out the full functions of water and sewerage undertakers, and that sufficient finance is available for them to do so. He is also responsible for the protection of the interests of customers, and has a duty to facilitate competition and promote economy and efficiency.
The director is independent and must be free to undertake his statutory duties and to ensure that the companies can supply the water and sewerage services that are demanded of them as appointed undertakers. His duties to protect the interests of customers require him to ensure that in the setting of charges the companies properly reflect the demands upon them, but he must also ensure that customers are not being required to pay more than is needed to finance functions. In his capacity to promote efficiency and economy, the director will set the companies clear and demanding efficiency targets to ensure that customers benefit from the improvements that the companies are able to achieve. In setting those clear and demanding efficiency targets, one of the issues to which he will wish to pay regard is what the companies are doing about such matters as leakage.
The hon. Member for North Cornwall highlighted the provisions in the Water Industry Act 1991 under which the Secretary of State may give directions to the director. He considers that this should be used to direct the regulator in the matter of individual charges for companies. Ministers are in regular contact with the director about the whole range of matters affecting the water industry. Under this provision, the Secretary of State may give directions to the director, indicating the considerations that he should keep in mind in the exercise of his role. However, the final responsibility for setting and reviewing the limits on charges rests with the director. The Secretary of State has no power to give the director a direction which might require him to set any specific level of charge, or to impose on a company any condition which might put at risk its ability to provide the services for which it is the appointed undertaker; nor has he any plans to seek such a power.
If the Secretary of State were to seek to impose restrictions on the freedom of the regulator to take an objective view on any matter, he would call into question

the independence of the regulator and prejudice his relationship with customers, the other environmental regulators and the companies themselves.
In approving the increase in water charges for South West Water, the regulator had to consider the requirements on the company to meet tighter environmental standards under the bathing waters directive and the requirements which followed the decision to treat coastal discharges and phase out the dumping of sewage sludge at sea by the end of 1998. These objectives were welcomed by customers and environmentalists alike.
The director general had first to satisfy himself that the company could not, without an increase, fulfil its functions as a water and sewerage undertaker. He then had to determine how much extra was necessary to allow the company to continue until 1995, when he proposes to review the K factors for all the companies. The director concluded:
I have a statutory duty to ensure that the company can finance its functions as well as a duty to protect customers. I have considered carefully the figures submitted by South West Water and believe that these increases are justified. These price increases will enable South West Water to manage its programme in the period up to 1994 when I will review the price limits for all the water companies.
That was the judgment of an independent regulator, having regard to all the information that he had for South West Water.

Mr. Tyler: Will the Minister give an explicit answer to the questions about the green dowry that both I and the hon. Member for St. Ives (Mr. Harris) raised earlier, and to the question about European funds? If those were there, the whole equation that the Director General of Water Services would be considering would be quite different.

Mr. Baldry: The hon. Gentleman knows full well that, as my hon. Friend the Member for St. Ives made clear, the water industry, including South West Water, has already had, as part of the proceeds of privatisation, a substantial green dowry. Privatisation made available to the water companies the sums of money that were never available when it was a publicly regulated institution that had to depend year after year on Treasury grant.
South West Water has submitted applications for European regional development fund grants. Projects have to be additional to existing plans to qualify. I understand that consideration is being given by the European Commission to the possibility of a further grant, but that in no way detracts from the conclusion to which the director general has come—that the increases submitted by South West Water are justified.
Environmental standards are being set in many instances in European Community directives, and in some instances they may require us, in order to meet the timetables set, to undertake works at a faster rate than planned. What is certainly true is that all those living in and visiting the south-west, an area that depends heavily on tourism, will want to ensure that water quality in the south-west and elsewhere in Britain is of the highest possible standard. Ensuring such high standards involves investment and—
The motion having been made at Ten o'clock and the debate having continued for half' an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
Adjourned at half-past Ten o'clock.